XEJ up 28% so far in 2022: What’s powering Australia’s energy index?

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XEJ up 28% so far in 2022: What’s powering Australia’s energy index?

 XEJ up 28% so far in 2022: What’s powering Australia’s energy index?
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Highlights

  • The S&P/ASX 200 Energy Index (XEJ) has logged 27.61% YTD gains, as of Wednesday.
  • XEJ stands at its multi-year resistance level and has been consolidating at this position for more than a month.
  • The returns logged by XEJ are highly linked to commodity prices, especially crude oil. 

The S&P/ASX 200 Energy Index (XEJ), Australia’s energy index, has logged 27.61% YTD gains compared to -2.83% offered by the S&P/ASX 200 index. However, in the past three, five, and ten-year periods, the broader market has outperformed the energy sector. Over the past decade, the S&P/ASX 200 index’s 5.87% annualized return was much higher than the energy index’s -2.29% return.

Data Source: Refinitiv Eikon

On Wednesday, the energy index, which tracks the performance of the 200 largest energy stocks on the ASX by float-adjusted market capitalisation, gained 0.28% to trade at 10,081.60. The index gained substantially in line with a rise in global crude oil prices, one of the biggest influencers of the energy index.

Must Read: Here's how ASX energy index has performed against its peers

While looking at the multi-year chart, it looks like XEJ stands around its multi-year resistance level. The index has been nicely consolidating at this position for more than a month.

S&P/ASX 200 Energy Index (XEJ) chart

S&P/ASX 200 Energy Index (XEJ) chart | Source: Refinitiv Eikon

The energy index's return is strongly correlated to the prices of commodities, particularly crude oil. Both crude oil benchmarks gained more than 69% in the last one year with WTI crude oil futures gaining as much as 76.66% in the same period.

On Monday, Brent crude oil futures hit two-month highs, surpassing the mark of US$121/bbl. As of Wednesday, August delivery Brent Crude oil futures gained 1.38% to trade at US$117.25 per barrel while July delivery WTI crude oil futures traded at US$116.30 per barrel, up 1.40% at 5:42 PM AEST.

The staggering rise in the prices of crude oil came after China eased its COVID-19 restrictions after two months and European Union members discussed the sixth package of sanctions against Russia for its invasion of Ukraine.

Also Read: Here’s how energy prices are driving Australian Energy Index

ASX Energy Stocks

Various ASX-listed energy heavyweights have powered the energy index. O&G giant Beach Energy's (ASX:BPT) shares rose 1.16% on Wednesday alone. So far in 2022, BPT shares have surged by a whopping 33.21%.  

Another significant O&G player, Santos (ASX:STO) has also gained as much as 18.67% in the last one year. Though the shares remain muted on Wednesday and settled at AU$8.20.

Also Read: Crude oil surges to 14-year highs on delays in Iranian talks

Apart from this, various other significant energy players, including Woodside Petroleum (ASX:WPL) logged significant gains while Origin Energy (ASX:ORG), and Whitehaven Coal (ASX:WHC) share prices dropped on Wednesday.

Must Watch: As Russia-Ukraine War Intensifies, Commodities Also Soars

Bottom Line

In the last one year, Australia’s S&P/ASX 200 Energy Index has outperformed the broader S&P/ASX 200 index. Currently, the index has been consolidating at the multi-year resistance level. The staggering jump in the index has been underpinned by a solid recovery in global energy prices.

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