As Russia-Ukraine Conflict Continues To Cause Uncertainty, Are Energy Stocks Still An Attractive Option?

The Russia-Ukraine conflict caused disruptions in crude oil and natural gas supply to some parts of the world — particularly Europe, which depends heavily on Russian oil and gas to meet its energy means.

Russia supplies 40% of the European Union's natural gas and 27% of its oil. The EU, in return, sends Russia about $430 billion a year.

Rising Crude Prices

The onset of the conflict in February and its subsequent supply disruptions drove up crude and natural gas prices. Brent crude oil prices jumped to more than $100 per barrel, the highest they’ve been in recent years.

The price spikes also took aim at the stock market, causing a rapid uptick in energy stocks.

A nasty wave of sanctions imposed by the U.S. and the EU on Russia caused a ripple effect on stock markets and seemed to heighten the fears of investors, who had buried their money in energy stocks hoping for glorious cash out when the market was ripe.

Energy Sector Players

To ensure a constant supply of crude oil, gas and other energy products, companies like Chevron Corp. CVX, Exxon Mobil Corp. XOM and Shell plc SHEL are increasing the exploration, production, and marketing of oil, gas and renewable resources.

These companies are worth $18 trillion in listed equity, making up a quarter of the value of global equity markets that power an ever-evolving world.

Positive Outlook For Energy Stocks?

Energy sector stocks generally involve companies that are either upstream or downstream. 

Upstream companies include companies like Devon Energy Corp. DVN  that are involved in the exploration of oil or gas reserves.

Downstream companies like Marathon Petroleum Corp. MPC refine and process oil and gas products.

Despite the Russia-Ukraine conflict and global energy crisis, the energy sector has outperformed the overall market since the COVID-19 pandemic caused supply disruptions and job cuts.

With a push for energy transformation and a focus on greener renewables, valuations in the energy sector might be becoming more attractive.

The energy sector has some positive aspects:

• Oil prices are supported by improving demand, and the Russia-Ukraine war curtailed supply and drawdown in inventories.
• Large, diversified energy companies have strong balance sheets and are more disciplined with expense and investment management — however, the high price of oil could erode this self-control.
• Valuations are reportedly attractive relative to other sectors.

The energy sector’s positive outlook could have a reciprocal impact on smaller energy players such as Texas-based Viking Energy Group Inc. VKIN.

Through various majority-owned subsidiaries, Viking provides custom energy & power solutions to commercial and industrial clients in North America and owns interests in oil and natural gas assets in the United States. The company also holds an exclusive license in Canada to a patented carbon-capture system, and owns a majority interest in entities with intellectual property rights to a fully developed, patent pending, ready-for-market proprietary: (i) Medical & Bio-Hazard Waste Treatment system using Ozone Technology; and (ii) Open Conductor Detection systems.

Viking says a primary goal is to leverage its expertise and relationships to build a diversified organization with profitable business segments that increase stakeholder value. The company believes its balanced approach will expedite growth while reducing dependence on any particular division.

The company also reports that it is looking to acquire a majority interest in assets or entities with current revenue streams and realistic upside potential.

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