This year, the energy sector has made a surprising comeback, outperforming nearly every other sector in the market. With a 17% increase, energy has overtaken the S & P 500, trailing only the media and entertainment sector, which has seen a 20% gain. In fact, energy has been the best performer over the past month, with a staggering increase of almost 14%.
Room for Growth?
Despite these impressive figures, the energy sector is still lagging behind the broader market by 14% over the past year. This means that momentum funds have not been quick to include energy stocks, as they typically focus on 12-month performance. However, analysts like Jonathan Krinsky from BTIG believe that there is still room for growth in the sector. Krinsky notes that energy has recently broken out of a two-year base, with relative strength on the rise. This could potentially position energy as the new momentum play in the market.
Rob Ginsberg, a technical analyst at Wolfe Research, commented on the “long awaited energy breakout” that occurred last week when the Energy Select Sector SPDR Fund reached nine-year highs. The surge in the energy sector can be attributed to the rally in crude oil prices, which have rebounded significantly after a slump in the last quarter of 2023. U.S. crude oil prices are up over 19%, Brent crude has increased by more than 16%, and gasoline futures have surged by 30%. JPMorgan even predicts that Brent futures could hit $100 a barrel by September.
The rally in oil prices is due to a combination of factors, including tightening global supplies, strong economic growth, and a reduction in production by OPEC+ members. Geopolitical tensions are also contributing to the rise in oil prices, with conflicts in Ukraine, Iran, and Israel adding to supply concerns. As a result, analysts like Ginsberg are advising clients to buy any overbought pullbacks, as long as crude oil continues to show signs of upward momentum.
Exxon Mobil, one of the leading companies in the energy sector, reached an all-time high last week, gaining more than 21% for the year. Refiners like Marathon Petroleum, Phillips 66, and Valero also hit all-time highs, with significant increases ranging from 27% to 47%. Other energy companies like Diamondback Energy and ConocoPhillips are also seeing impressive stock performance, trading at levels not seen in years.
Despite the recent rally in the energy sector, analysts remain cautiously optimistic about the sustainability of this trend. While there is potential for further growth, uncertainties surrounding global economic conditions and geopolitical tensions could impact the sector’s performance in the future. Investors should closely monitor developments in the energy market and adjust their strategies accordingly to navigate potential risks and opportunities.
The energy sector’s comeback is certainly impressive, but it remains to be seen whether this trend is sustainable in the long run. By staying informed and vigilant, investors can make well-informed decisions to navigate the complexities of the energy market.