Rising energy stocks defied market’s September slide

Shares of oil and gas companies are up nearly 2% in 11 sectors of the S&P 500 so far this month. Stocks such as ConocoPhillips, Baker Hughes Company and Occidental Petroleum are up at least 4.9% in September. The broader US stock-market index, meanwhile, has fallen 2%, surrounded by losses in nearly all other major market segments.

Investor enthusiasm for the stock has been dampened in recent months by concerns about the market moving too fast. Conflicting data on the health of the economic recovery and inflation and whether the Covid-19 delta version will add another dark chapter to the pandemic has also weighed on investors.

But energy reserves are climbing. Lack of oil supply has pushed prices higher, helping energy stocks take a different path than the rest of the stock market. Hurricane Ida knocked out swaths of produce after ripping through the Gulf of Mexico. Fires at oil facilities in Mexico and Russia, operational issues in Nigeria and Libya as well as further production cuts, all helped send crude futures for October delivery up 5.1% so far this month.

Peter McNally, head of the global sector for industry, materials and energy at Third Bridge’s research arm, said, “There just isn’t enough being produced. To get back to normalcy, we’ll have to manufacture more gasoline and the industry needs to be able to do that.” Have to run hard.”

Last Tuesday, the International Energy Agency cut its supply forecast for the year by 150,000 barrels per day. The $23 billion Energy Select Sector SPDR Fund rose 3.7% on the same day. According to Bank of America Merrill Lynch, investors poured nearly $1 billion into energy funds over the past week, the most since June.

The epidemic began to subside as travel and economic activity resumed, translating into greater use of oil, even before production problems occurred. Nearly two-thirds of energy stocks have helped outperform the S&P 500 over the past 12 months, according to BMO Capital Markets, while the sector has so far posted a market-leading 29% gain for 2021.

The same factors are at play in the natural-gas market to the advantage of companies like Cabot Oil & Gas Corp., which is up 22% this month. Natural gas prices in the US exceeded the US dollar per million British thermal unit due to production constraints and rising demand. Demand has been even higher in Europe, where insufficient wind volumes have helped push natural gas prices above $20, creating a bonus for US exporters, said Stewart Glickman, an energy analyst at CFRA. .

With winter on the horizon, the near-term outlook for energy stocks remains bright, analysts and investors said. Some commodity analysts forecast Brent crude prices to reach $100 a barrel in the third quarter, up from around $75 now. Shares of energy firms are best positioned to profit if the economic recovery continues, according to analysts at UBS Group AG’s US wealth-management arm.

Energy stocks also stand to gain as inflation plays out. Bank of America analysts suggest using energy stocks as a hedge against inflation, if necessary. The bank said the sector pays a 2.2% dividend yield, making it a better bet than negative-yielding Treasury inflation-protected securities.

Some analysts said that beyond winter, the picture becomes murky, posing timing risks for investors if they stay in energy stocks too long. The US Energy Information Administration cut its 2022 oil-demand forecast by 240,000 barrels. Some forecasters have also predicted a fall in prices.

The Organization of the Petroleum Exporting Countries recently forecast that demand will exceed pre-pandemic levels next year.

Prices can’t fall even if demand falls, Glickman said, because oil and gas reserves are so low.

“It’s not like we’re bloated with inventory in the beginning,” Mr Glickman said.

This story has been published without modification to the text from a wire agency feed