One noteworthy event in the early days of November 2017 was the news that energy stocks were breaking out in the UK stock market. This was an interesting phenomenon and it was not limited the UK stock market, as gas and oil producers’ shares on the S&P broke above the 200-day, a step recognised as one of great significance by those who follow the fortunes of energy stocks the world over. Relative performances were also breaking over and this was also a step of great significance, as it was stated that for the first time in 2017, momentum passed onto the side of the energy equities. Perhaps the most notable illustration of this upturn in the fortunes of energy equities in the UK was the much-publicised information that BP had comfortably outperformed expectations in its Q3 figures, announced in October. The UK oil giant was seen by many to be well on the road to recovery after a lengthy period of retrenchment and reconstruction following the Deepwater Horizon drilling and environmental disaster. Although problems remained, BP performed in a manner that was described by many analysts as ‘solid’, with figures for profit and cash flow comfortably exceeding those for the comparable quarter of the previous year.
Of course, the market for energy stocks is an unusual one, affected by many varied factors, some political, some demographic and some political. The performance of BP mentioned above, and those of other fuel producers, are rarely spectacular in their performance, because at the base, the profitability and performance of such companies rely on the basic price of the raw product, be that crude oil, natural gas or some other substance. These prices are, to a degree, volatile, and they can vary for reasons that are more political than economic. Environmental concerns should also not be neglected when you are considering the matter of the recent break out of energy stocks in the UK stock market. It is not merely a matter of spectacular disasters such as the aforementioned Deepwater Horizon event. The UK stock market could still feel the after-effects of the fracking controversy and feel the knock-on effects from similar concerns being expressed in other parts of the world.
However, the fact remains that energy stocks are breaking out. This is in itself not surprising as, even in an increased efficiency conscious market, the demand for energy increases, not only as our lives become more technological but as emergent economies create increasingly large numbers of middle-class consumers, who are attracted to the energy-heavy lifestyle. This remains the attraction of energy stocks and may explain their recent breakout. The need for energy is a norm, and despite all the concerns and the volatility and the non-economic considerations, it seems likely that this demand will continue for the foreseeable future.
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