The I3 Energy (LSE:I3E) share price has had quite an impressive 2022, so far, and the momentum doesn’t appear to be slowing. Since the start of the year, the stock has surged a massive 82%, pushing its 12-month return to just under 140%! What’s behind this sudden growth? And should I be considering this business for my portfolio?
The explosive I3E share price
As a reminder, I3 Energy is an oil & gas production business operating in Canada and the UK. With supply chain disruptions, inflation, and the conflict in Eastern Europe all landing simultaneously, oil prices have been climbing. And today, they currently stand at around $110 per barrel, versus $63 a year ago.
Seeing the I3E share price climb in line with these prices is hardly surprising. But it doesn’t seem to be the only catalyst behind its current momentum. With Western nations seeking to end their dependency on Russian oil, government-backed investments into North Sea oil production are on the rise – something that I3 Energy is benefiting from.
Meanwhile, management recently finished integrating its newly-acquired oil assets from Cenovus Energy. And subsequently, oil & gas production has reached record highs. At the end of 2021, the group produced on average 18,229 barrels per day. Skip ahead to the end of this year’s first quarter, and that number has jumped to 20,312.
With production growing by double-digits during a time of elevated oil prices and increased external investment in the industry, I’m not surprised to see the I3E share price climbing.
Taking a step back
As encouraging as the group’s progress has been, there are some risks to consider. First and foremost, the oil industry is notoriously cyclical. And with other companies ramping up production to capitalise on the higher prices, supply will eventually and inevitably catch up with demand.
In fact, this may already be happening. A quick glance at the derivatives markets shows that oil futures contracts for 2023 are pricing the commodity at around $86 per barrel. This essentially serves as a proxy forecast of where the market thinks oil prices will land next year. And while that’s still higher than 2021 levels, it could result in I3 Energy’s top line suffering, putting an end to its share price momentum.
The bottom line
All things considered, this company looks rather impressive. With production ramping up, management is successfully capitalising on the current favourable operating environment. Having said that, this already seems to be baked into the share price. And with oil prices expected to take a hit within the next 12 months, I’m not convinced the I3E share price can maintain its current momentum.
That’s why I’m keeping this stock on my watchlist for now.