Will the Energy Sector Rise Strongly in 2022?

The cost of living in Australia has risen considerably over the past two years with several waves of COVID causing widespread lockdowns, supply chain issues and delays. This has seen demand outstrip supply causing costs to soar and prices to rise. One area that has been hit the hardest is energy costs with petrol and the cost of filling up your car rising to unprecedented levels.

Will oil prices rise or fall into Christmas and the New Year?

As we know, the price of fuel is linked to oil prices, so the question that needs to be answered is will oil prices rise or fall into Christmas and the new year. At the risk of being a two-handed economist, I don’t believe oil prices will rise but I also don’t believe they will fall very much.

Most experts are predicting oil to be around $80 a barrel in 2022, which is where it is now. The challenge with being more precise about what will happen is the unpredictability of COVID with more lockdowns expected around the world, which could see supply outstrip demand as oil producers can’t just turn on and off the tap like we do in the garden. If this occurs prices will fall, that said if things settle and demand increases, we will see prices stay high for a while longer while oil producers ramp up supply.

The news is not all bad, as the charts show that the price of oil should fall for a short period early to mid-2022, which could see oil back below $70 a barrel and possibly as low as $50 a barrel. However, there are a lot of variables and as we are in unprecedented times, anything could occur that would affect this. Due to the issues around the world at present, the energy sector has not done well in 2021 although I expect it will do much better in 2022. That said, I don’t expect the opportunities in the energy sector will come from oil companies.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 2.04 per cent followed by Materials up 1.68 per cent and Consumer Staples down 0.59 per cent. The worst performing sectors included Information Technology down 6.04 per cent followed by Financials down 3.61 per cent and Energy down 3.02 per cent.

The best performers in the S&P/ASX top 100 stocks included Fortescue Metals up 11.12 per cent followed by APA Group up 5.47 per cent and Mineral Resources up 5.20 per cent. The worst performing stocks included AMP down 11.89 per cent followed by Wisetech Global down 9.85 per cent and Qantas down 8.76 per cent.

What's next for the Australian share market?

You would think with BHP, RIO and Fortescue all up strongly that the All-Ordinaries Index would also be trending up, however, as I have previously mentioned the Financial and Materials sectors generally determine our markets direction and, once again, both sectors moved in opposite directions last week.

In the last 23 trading days, the Australian stock market has fallen over 1.9 per cent on three separate occasions while it has risen 1.7 per cent on one occasion and over 2 per cent on two other occasions. As at the close last Friday, it is down around 2 per cent from where it opened 23 trading days ago on 26 October. As such, it is obvious that the market is struggling to find a direction and is displaying a real lack of confidence with neither the bulls nor the bears willing to commit to a move.

Technically, last week was a down week for the market given that the All Ordinaries Index traded below the low of the prior week, so you could say the bears are more in control. Right now, it would be good if the market moved down for one or two more weeks, as this means it will be stronger in 2022.

As such, I would not be surprised to see the All Ordinaries Index fall away up to 5 per cent over the next few weeks before rising up into February. Despite the uncertainty in the market continuing, right now it would pay to be cautious before buying any stocks, as you may be buying just before they fall away.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.