This is cutting into the demand for coal and could also start hurting demand for oil, gas and other traditional energy sectors, potentially jeopardizing their long-term value. New sources of green energy, like solar, have become dramatically less expensive over the past decade. Innovation and technology may reduce long-term demand. On the other hand, green companies often rely on government subsidies for development, which don’t always come through, creating political risks on both sides of the energy sector. As the world ramps up the fight against global warming, global leaders could enact more regulations limiting the use and production of some sources of energy, like fossil fuels. These financial drains can potentially harm your long-term returns if enough of them coalesce.Įxtra regulatory risk. It takes considerable resources to explore new sources of energy, like drilling for new oil wells, not to mention research and development for sustainable energy technology that may not always pan out. The value of energy stocks tends to track energy prices, making these investments more volatile and potentially riskier than stocks in other sectors.Ĭompanies need to make big investments. For example, over the past 10 years the price of crude oil has gone from as high as nearly $110 a barrel to as low as less than $20 a barrel at the start of the Covid-19 pandemic. Energy prices can swing widely and rapidly, depending on the state of the global economy. Not only is this an ethical concern, it also makes energy companies vulnerable to costly lawsuits, which can hurt your returns.Ī volatile market. They also have other potential environmental issues, like oil spills. Oil, gas and coal companies are notorious for products that emit greenhouse gases, which worsen global warming. Now that the world is beginning to reopen, there could be a new surge in travel, pushing up demand and prices for the best energy stocks. The energy sector struggled throughout the Covid-19 pandemic, due to less travel and overall demand. By investing broadly in the energy sector, you can also get exposure to green stocks like solar or wind energy companies. While oil and natural gas stocks make up the largest share of energy stocks by market cap, they don’t represent the entire sector. This means there will be plenty of future demand both for existing energy sources like oil and gas as well as growing needs for alternative sources.ĭiverse range of investments. As countries like China and India continue to develop, their need for energy will grow, too. This is a chance for them to pay higher dividends to investors or to invest for future growth. When energy prices go up, energy companies can reap the benefits, like by earning significantly more per barrel of oil, even though their costs stay about the same. Potential for high dividends or company growth. The world economy needs power, creating sustained, long-term demand for the energy sector. Energy is a major sector of the economy and accounts for trillions of dollars each year. Huge markets that are crucial for the global economy. For example, a company could handle both the extraction, refining and transportation of oil while it also invests in renewable energy projects. In fact, it’s common for companies to have hands in many different categories within the energy sector. Note: Companies aren’t limited to one category. These are companies that focus on green sources of energy like solar, wind and geothermal. The same goes for uranium, which fuels nuclear power plants. Coal is still a key source of energy and must be mined. Pipeline companies transport oil, natural gas and processed products. Refineries take the raw materials, like crude oil, and process them into fuel that’s ready for consumption. Once oil and gas are extracted, they are still not ready for use. Their value comes not only from existing sales but also the worth of their untapped oil and gas reserves. ![]() ![]() These companies focus on finding new sources of oil and natural gas, extracting and processing the resources and supplying them to the economy. Some of the top categories for energy stocks include: They can also include companies providing services and equipment to energy producers. ![]() Energy sector stocks come from companies focused on the production and supply of energy products to the rest of the economy.
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