The price of gasoline has been falling steadily for more than two months, and with it large inventories of oil and gas. Gasoline, of course, is not the only fuel made from crude oil, but it is the most prominent, and the fortunes of various stocks depend on the price. Even so, for those who want to avoid the volatility of gasoline prices, it is possible to build a portfolio that is less sensitive to price changes.
Barron’s looked at energy stocks in the S&P 500 that have risen since June 14, the day average US gasoline prices averaged $5.02 a gallon, according to the AAA. Since then, gasoline has dropped to $3.92.
Energy markets have traded in unique patterns this year. The historic relationship between oil and natural gas fell apart. The global shortage of natural gas has pushed the price of this commodity to its highest level in more than a decade, even as oil prices continue to fall. In general, companies that focus on producing or transporting natural gas perform better than those focused on oil.
Since the peak in gasoline prices, companies less sensitive to underlying commodity prices have performed better than those more directly dependent on strong prices.
|Company / Bookmark||recent price||Market value (bil)||Price change*||dividend yield|
|Kinder Morgan / KMI||$18.69||$43||5.8%||6.8%|
|ONEOK / OK||63.87||29||6.5||6.4|
|Western Oil / OXY||64.86||60||4.5||0.1|
|Williams Companies / WMB||34.98||43||9.0||6.3|
*As of June 14, 2022
The best performers were mainly companies that operate pipelines and other energy infrastructure, some of which make money on the basis of long-term contracts. They also have high dividend yields, giving them more stability in times of price volatility. That includes
Some analysts say the companies have regained investor confidence because of their steady dividends.
“Over the past few quarters, midstream has made significant progress in rebuilding a history of rising payments,” wrote Stacey Morris, head of energy research at VettaFi. “Names that cut their dividends during energy market volatility and uncertainty related to the 2020 pandemic have largely returned to growth.”
The high demand for natural gas is clearly helping some of the pipeline operators. In his latest earnings call, Williams Companies CEO Alan Armstrong said he sees little sign of slowing natural gas demand and Williams is “the most natural gas-centric of the large-scale midsize companies.”
“This demand growth continues to increase in the face of higher natural gas prices, which shows the continued inelastic demand for natural gas, both here and abroad, and the fact that natural gas remains a bargain relative to alternative fuels,” he said.
(OXY) produces both natural gas and oil and is a favorite of Warren Buffett, which may have helped stocks rally in recent months as he bought more.
now owns more than 20% of Occidental.
Write to Avi Salzman at email@example.com