Oil and Gas

Data from the Energy Information Administration (EIA) shows that natural gas was the second most widely fuel in the U.S., accounting for 32% of the energy consumption in 2021..

While petroleum was still the largest, it was used mostly for transportation purposes, as natural gas was the dominant fuel of choice in residential, industrial, and commercial use cases. Within the electricity sector, natural gas also led the pack and accounted for 32% of the total usage, and overall, natural gas accounted for 36% of the U.S. primary energy production. Finally, U.S. natural gas production also outstripped usage in 2021

The top-performing oil and gas stocks in the past year include TORM PLC, Teekay Tankers, and Scorpio Tankers. Despite oil prices dropping significantly from their peaks recorded nearly a year ago, these companies have seen their shares rise by well over 100% in the past year, handily beating the 9% drop in the Russell 1000 Index.

Oil and gas stocks as a group, measured by the benchmark Energy Select Sector SPDR ETF (XLE), have climbed by 10% in the past year, outperforming the broader market. However, declining oil and gas prices in the second half of 2022 and into 2023 could pressure margins and revenues in the sector.

Pros

Inflation/Interest Rates Hedge: Historically, rising inflation has been correlated with higher oil prices, offering investors a potential portfolio hedge by investing in oil and gas stocks. Typically, the Federal Reserve raises interest rates to tackle inflation, aiming to lower consumer demand. According to Bob Iaccino, co-founder of Path Trading Partners, the price of West Texas Intermediate (WTI) crude contracts over the past six rate-tightening cycles has risen by an average of 16.06% six months after each rate hike.

Tax Advantages: Investing in oil and gas stocks provides investors and producers with a range of unique tax benefits. Some key advantages include the favorable way active and passive income is treated and the deduction of certain drilling and lease costs. For instance, the Internal Revenue Service (IRS) tax code considers earnings from oil and gas royalties as passive income while categorizing net losses as active income. This may enable some investors to offset their production revenue losses from other forms of income, such as capital gains.

Cons

Swing trade positions are subject to overnight and weekend market risk.

Abrupt market reversals can result in substantial losses.

Swing traders often miss longer-term trends in favor of short-term market moves.

Finally, the global natural gas market was estimated to be worth $955 billion in 2022 and will grow at a compounded annual growth rate (CAGR) of 7.3% this year to be worth a little over $1 trillion by the end of 2023 according to The Business Research Company. From 2023 until 2027, the industry is expected to exhibit a CAGR of 7.5% and be worth $1.3 trillion. Some of the top profitable natural gas companies part of our list today are Public Joint Stock Company Gazprom (MCX:GAZP.ME), Coterra Energy Inc. (NYSE:CTRA), and Tourmaline Oil Corp. (OTCMKTS:TRMLF).