The S&P/ASX200 Index (ASX: XJO) has climbed 14.5% higher in 2019 and has been largely buoyed by the strong share price increases from several major energy sector players.
What's been happening for Aussie energy companies?
The S&P/ASX200 Energy Index (ASX: XEJ) has rocketed 21.9% higher year-to-date and has been led by the likes of Origin Energy Ltd (ASX: ORG), Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO).
The Origin share price is up 18.7% for the year while the Beach and Santos share prices have soared 72.1% and 40.2% respectively.
Boasting market capitalisations of $13.2 billion, $5.1 billion and $15.4 billion, these major oil and gas companies are a big reason behind the ASX's strong start to 2019.
Why is the Energy sector performing strongly?
One of the big factors supporting domestic oil and gas companies is the supply-side of the equation in Australia, with an east coast gas shortage keeping gas prices at record highs despite the best efforts of state governments to bring economic relief to consumers.
The flipside of high gas prices has been an increase in profitability for the major energy companies such as Origin, Beach and Santos and this has translated to sizeable equity gains so far this year.
Also boosting profitability higher is the global crude oil part of the story, with OPEC-led supply cuts and ongoing supply disruptions in Libya and Venezuela pushing crude oil prices to 5-month highs in recent weeks.
I'm personally quite bullish on energy companies despite potential regulatory risk from a recent ACCC investigation into the domestic electricity price situation.
I think that provided the ACCC doesn't intervene in domestic electricity markets, the non-cyclical nature of these companies' earnings can provide a good hedge against an economic downturn while also providing some upside exposure to GDP growth and domestic energy policy.
Origin's P/E ratio of 47x earnings looks a little pricey to me and I'd be looking at Santos (17.6x) or Beach (24.2x) in the short-term.
For those who want to look elsewhere for growth, this top-rated stock could boost portfolio gains as it continues to soar in a $22 billion industry.
