Oil was one of the biggest market headwinds earlier this year but even as it turns into a tailwind, it offers a key lesson for investors, according to Fundstrat’s Tom Lee. “For many years, our clients thought energy was a group that they could ignore because the world was moving towards renewables,” he said in a CNBC Pro Talk Tuesday. “But it turns out that because of the continued and current dependence on fossil fuels, energy security is a big deal. That’s actually helpful for energy stocks.” Crude oil began the year at about $76 a barrel, but rose to above $100, pushing gas prices higher and fanning a big rise in inflation expectations. However, even at a time where uncertainty about the Russian war on Ukraine lingers, oil was back below $80 a barrel Tuesday. “The price didn’t rise as many expected, people were doing some very linear calculus about [if] you cut this availability then the price needs to adjust. But what we saw in 2022 was a lot of creativity” in how Europe sourced energy, Lee said. Lee also said oil prices don’t have as much upside as people think. The security of future and sustainable energy supplies is not adequate, but there will be “novel ways” to deal with higher prices, he said. Energy stocks, however, have “sustained upside” because their valuations are so low, he added. “If energy is as important to the economy as we understand it to be – you can’t really run an economy without supply of energy – then energy stocks should have a market cap that matches the net income share,” he said. “These things could still double next year on a flat market.” Additionally, energy is benefiting from a seasonal bias right now, Lee said. Fundstrat expects the sector will be one of the top groups in the October to March period.
