Market Insights

After months of relative quiet, energy stocks are back in focus with a triple dose of bullish news.

The sector began the week rallying on reports that OPEC+ would lower output by 1 million barrels per day. The cartel then did the unexpected by cutting 2 million barrels from daily supplies. That represents about 2 percent of the global market. The move was intended to lift prices hammered lower by the Federal Reserve’s hawkish monetary policy.

Next, inventories of oil available in the U.S. fell another 1.4 million barrels last week. The Strategic Petroleum Reserve (SPR) has also shrunk to the fewest barrels (416,000) since 1984, according to the U.S. Energy Information Administration.

Those two catalysts lifted crude oil futures (@CL) 11 percent since last Friday. They’re on pace for their biggest weekly gain since early March, immediately after Russia invaded Ukraine.

Exxon Mobil

The third big story was Exxon Mobil’s (XOM) preannouncement that third-quarter operating profit topped $13 billion. That was about 30 percent higher than expected, according to Reuters. Some analysts said the results will let the energy giant raise its dividend significantly for the first time in three years.

XOM jumped 4.6 percent on the news, the fourth-biggest gain in the S&P 500 on Wednesday. The stock also came within $0.01 of pushing back above $100.

Oil servicers, which stand to benefit from increased drilling in the U.S., surged even more. Schlumberger (SLB) was the index’s top gainer yesterday and Halliburton (HAL) ranked third in the S&P 500, according to TradeStation data.

SPDR Energy ETF

The moves refocus attention on energy stocks, the only sector with a positive return in 2022. While the SPDR Energy ETF (XLE) is up 45 percent this year, it’s been consolidating since June. Some chart watchers may notice a descending trendline on the fund and watch for signs of a potential breakout.

One final potential catalyst could be China. Reuters and Bloomberg have both reported this week that Beijing is letting refiners increase production. Multiple articles have also predicted increased demand as the Asian country eases coronavirus restrictions and stimulates its economy.

In conclusion, oil prices and energy stocks fell last month as investors worried about a global economic slowdown. But supplies continue to tighten as demand potentially increases. The biggest U.S. company preannounced strong earnings. Servicers, the most sensitive to higher prices and increased production, were among the market’s top gainers yesterday. Are the bulls coming back to the oil (and gas) well?

Standardized Performances for SPDR Energy ETF (XLE)

Performance data shown reflects past performance and is no guarantee of future performance. The information provided is not meant to predict or project the performance of a specific investment or investment strategy and current performance may be lower or higher than the performance data shown. Accordingly, this information should not be relied upon when making an investment decision.

Exchange Traded Funds (“ETFs”) are subject to management fees and other expenses. Before making investment decisions, investors should carefully read information found in the prospectus or summary prospectus, if available, including investment objectives, risks, charges, and expenses. Click here to find the prospectus.

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement please see our Investment and Trading Disclosures Booklet – Futures.