ASX 200 energy shares are up 40% so far this year. Can they run further?

Investors in the sector have realised tidy gains this year to date.

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Two fists connect in a surge of power, indicating strong share price growth or new partnerships for ASC mining and resource companies

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ASX 200 energy shares have been the best performing basket on the ASX this year to date, securing an aggregate 40% gain since trading resumed in January.

The S&P/ASX 200 Energy Index (ASX: XEJ), the benchmark of the sector, has climbed another 8% in the last month of trading as well.

The question now becomes if shares within the basket have the legs to run even higher.

Can ASX 200 energy shares continue their ascent?

Providing a bullish underweight to the case is the current breakout in the price of oil. Brent Crude, the world’s benchmark for oil pricing, has broken out to new highs in recent weeks and now trades at US$122 per barrel.

Meanwhile, US natural gas futures have surged more than 173% year on year to US$8.99/MMbtu.

In fact, checking a list of energy-based commodities on Trading Economics, it’s an all green affair for all energy markets on a yearly basis.

JP Morgan’s Annual Energy Paper 2022 also submits that energy players are set to continue realising upside into the coming periods, based on a myriad of factors.

“[G]lobal gas and coal consumption in 2021 were already above pre-COVID levels, and global oil
consumption should surpass pre-COVID levels sometime next year,” it wrote.

“Looking further out, some forecasts of oil demand in 2030 and 2040 are not that different from today.

“With energy demand still in excess of supply, [we] believe the MSCI Global Energy Composite will outperform both renewable energy stocks and the broad equity market again over the next year.”

Coal is also set to remain top-heavy, the energy paper says, reminding us that “coal is still widely relied upon in many developing countries, and also Japan”.

This language appears to provide a robust case for ASX-listed energy giants such as Santos Ltd (ASX: STO), Beach Energy Ltd (ASX: BPT) and Whitehaven Coal Ltd (ASX: WHC).

Each are up a respective 12.5%, 48% and 104% this year at the close on Friday. These returns are plotted on the chart below. Each instrument has tracked the other closely during that time.

As to what’s next for the sector, the market – and likely, geopolitics – will ultimately decide.

TradingView Chart

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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