Energy Sector

What Is the Energy Sector?

The energy sector is a category of stocks that connect with delivering or supplying energy. The energy sector or industry incorporates companies associated with the exploration and development of oil or gas reserves, oil and gas drilling, and refining. The energy industry additionally incorporates integrated power utility companies like renewable energy and coal.

Understanding the Energy Sector

The energy sector is a large and sweeping term that depicts a complex and between related network of companies, straightforwardly and by implication, engaged with the production and distribution of energy expected to power the economy and work with the means of production and transportation.

The companies inside the energy sector are engaged with different types of energy. Generally, energy companies are many times classified based on how the energy that they produce is obtained and will commonly fall into one of two categories:

Non-renewable

• Petroleum products and oil
• Natural gas
• Gasoline
• Diesel fuel
• Heating oil
• Nuclear

Renewable

• Hydropower
• Biofuels like ethanol
• Wind power
• Sunlight based power

The energy industry additionally incorporates secondary sources like electricity. Energy prices — alongside the earnings performance of energy producers — are largely driven by the supply and demand for worldwide energy.

Oil and gas producers will generally perform well during periods of raised oil and gas prices. Nonetheless, energy companies earn less when the price of energy commodities falls. Oil purifiers, then again, benefit from the falling cost of feedstock to deliver petroleum products like gasoline when crude oil prices drop. Moreover, the energy industry is sensitive to political occasions, which generally have prompted unpredictability — or wild vacillations — in the price of oil.

Probably the largest companies in the U.S. energy sector incorporate Exxon Mobil (XOM) and Chevron (CVX), the two of which are large international integrated oil companies. In 2020, Peabody Energy (BTU) was America's largest coal producer estimated by lots of output.

The Infrastructure Investment and Jobs Act of 2021 will offer help for parts of the energy industry. In particular, part of the $550 billion in funding will be allocated to electric grid infrastructure and power lines, as well as growing clean energy.

Types of Energy Sector Companies

Below are a portion of the types of companies found in the energy industry. Each plays a distinct part to play in carrying energy to businesses and consumers.

Oil and Gas Drilling and Production

These are the companies that drill, pump, and produce oil and natural gas. Production commonly includes hauling oil out of the ground.

Pipeline and Refining

Oil and natural gas must be delivered from the production site to a refinery to be refined into an eventual outcome like gasoline. Companies inside this portion of the energy sector are called mid-stream providers.

Mining Companies

Coal companies could be classified as energy companies since coal is utilized to power plants, including nuclear.

Renewable Energy

Clean energy has gained traction and investment dollars throughout the long term and is probably going to be a developing part of the energy sector later on. Instances of renewable energy incorporate breeze and sun oriented.

Synthetics

A few companies have some expertise in refining oil and gas into specialty synthetic substances, albeit numerous larger oil producers, for example, Exxon Mobil are integrated energy producers, meaning they produce different types of energy and control the whole cycle.

Instances of Energy Sector Investments

Investors have various options for investment opportunities in the energy industry, including equities of energy companies, mutual funds, ETFs as well as the ability to buy the commodities.

Exchange-traded funds (ETFs) are a basket of investments, like stocks, that track an underlying index. Mutual funds, then again, are a portfolio of stocks or investments that are chosen and managed by a portfolio manager.

There are a number of energy-related ETFs that retail investors can gain exposure to in the energy industry. Investors can pick what part of the value chain they need exposure to with quite a few funds. Below are a couple of instances of energy ETFs:

• The Energy Select Sector SPDR ETF (XLE) is a broad-based ETF that gives exposure to energy companies across the sector. Oil producers like Exxon Mobil and Chevron are in the XLE as well as technology providers like Schlumberger (SLB).
• The SPDR S&P Oil and Gas Exploration and Production ETF (XOP) furnishes investors with exposure to oil and gas exploration companies.
• The Invesco Solar ETF (TAN) gives investors access to alternative energy investments.

How investors decide to invest in the energy sector will probably rely upon their inclinations and specific perspectives about the growth and earnings possibilities of the different companies. The energy industry is greater and diversified than only the oil and gas industry. Numerous investors accept renewable and alternative energy sources will play an important job from now on, particularly as the demand for electric cars keeps on developing.

Features

• The energy sector has been an important driver of industrial growth over the course of the last century, giving fuel to power the remainder of the economy.
• The energy sector incorporates corporations that basically are in the business of creating or supplying energy like petroleum products or renewables.
• Companies in the energy industry are classified based on how the energy is obtained, for example, non-renewables or petroleum products and renewables, for example, sun powered.