The S&P/ASX 200 Energy [XEJ] index soared more than 10% over the past week, a sign that the energy stocks continue to burn brightly this year. However, as the shift to renewables gather pace, how long will the strong run continue to fuel fossil fuel stocks such as Karoon Energy (ASX:KAR) and Whitehaven Coal (ASX:WHC).
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The spike in fossil fuel shares last week followed a decision by the OPEC+ group to curtail production, to support high oil prices. The energy crisis in Europe resulting from the Ukraine conflict is also continuing to benefit fuel suppliers. For example, the restarting of coal-fired power plants in Europe has boosted demand and price for coal.
In markets that have been mostly volatile in 2022, few sectors have been more rewarding than energy. The S&P/ASX 200 Energy index has spiked more than 40% year-to-date, a rally marked by many energy shares reaching record highs.
Making hay while the sun shines
The strong demand and high prices of oil and coal have led to huge profits for companies that supply these fuel commodities. Consequently, many fuel companies have kept their dividends flowing, on top of delivering strong returns on their stock prices.
While fossil fuel stocks have been rewarding this year, how long will the strong run continue in the face of growing climate change measures that seek to phase out fossil fuel businesses.
While the future may be renewable energy, it will take time before the world abandons fossil fuels completely. In the meantime several fossil fuel companies may continue to see strong demand for their commodities, amid the ongoing global energy shortage.
Karoon Energy share price target
Karoon is an Australian oil production company, with domestic and overseas projects in Brazil. The company’s shares rose more than 20% in the past week.
The stock increase in response to OPEC+ production cuts was only one of the catalysts driving Karoon shares higher. Investors also welcomed Karoon’s announcement that the Brazilian government has reduced its royalty rate for the company’s Bauna project.
According to TipRanks’ analyst rating consensus, Karoon stock is a Moderate Buy. The average Karoon share price target of AU$2.59 indicates over 13% upside potential. The stock has gained about 30% since the beginning of the year.
Whitehaven Coal share price prediction
Sydney-based Whitehaven is a leading coal mining company. Whitehaven shares rose more than 20% in the past week, bringing their year-to-date gains to more than 320%. The company plans a significant expansion of its share repurchase program.
According to TipRanks’ analyst rating consensus, Whitehaven stock is a Strong Buy. Whitehaven shares have climbed so rapidly that analysts’ current average share price prediction of AU$9.19 suggests 15% downside potential.
Concluding remarks
While the future may be renewable energy, fossil fuel shares can continue to power investors’ portfolios. Considering that energy is an essential need in life, companies in the energy sector may weather an economic recession storm better than companies in other sectors.
