Energy Sector Up 21% in Past 3 Months: Will the Rally Last?
One of the sectors hit worst by the coronavirus pandemic, energy, is finally having something to cheer about.
Not long ago, the contagion caused energy stocks to sink along with crude prices. The commodity was ravaged by a perfect storm of bad news — the COVID-induced demand slump amid a supply glut. Oil’s horror show saw black gold’s price falling below $30, $20, $10 and even going negative for a while. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and narrowing profit margins.
However, most indicators show that energy could be on a recovery path. Currently at around $47 per barrel, WTI oil prices are at multi-month highs, while the international benchmark (or the Brent) went past $50 yesterday for the first time since March. It appears that the commodity is on the mend with the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up nearly 28% over the past three months to be at the top of the S&P sector standings.
The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 20.7% in the past three months, handily outperforming the S&P 500 Index’s 9.9% appreciation. The rise in prices is primarily being driven by continued vaccine-related developments that offer hope of an earlier-than-expected pickup in oil demand.
Last week, the U.K. government approved the Pfizer PFE-BioNTech BNTX coronavirus vaccine — the first country in the world to do so. The move by the British government, which is likely to be followed by other nations including the United States, is seen as big step against the deadly pandemic that has crushed the commodity’s demand and caused a bloodbath for the energy-related stocks. A vaccine is expected to revive economic and transport activity, leading to stronger crude demand.
Oil bulls are also supported by the OPEC + agreement to increase output by 500,000 barrels-a-day from January instead of the prescheduled 2 million barrels per day.
Amid gains in crude prices, shares of oil-related companies have rallied in the past three months. As a matter of fact, some of the top gainers of the S&P 500 during this period were energy firms — Occidental Petroleum OXY, Devon Energy DVN, Diamondback Energy FANG, Baker Hughes BKR and Marathon Oil MRO.
Occidental Petroleum was the top performing stock with a gain of 108.6%, while Devon Energy is the next best name on the list with its stock surging 84.8%. Diamondback Energy, Baker Hughes and Marathon Oil — all carrying a Zacks Rank of #3 (Hold) — rounded out the list with increases of 68.7%, 65.8% and 63.3%, respectively.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the three-month price performance of the five stocks.
Conclusion
Progress of the vaccine candidates notwithstanding, the road to recovery remains long and uncertain amid soaring new coronavirus infections in many countries, and the re-imposition of lockdowns that is severely hampering the fragile oil demand recovery.
But on the whole, hopes for an early COVID-19 vaccine seems to have outweighed the negative effects associated with the new curbs and restrictions. In other words, the vaccine rally has the potential to push WTI oil through the $50 mark after the international benchmark achieved the coveted feat yesterday.
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Marathon Oil Corporation (MRO) : Free Stock Analysis Report
Pfizer Inc. (PFE) : Free Stock Analysis Report
Devon Energy Corporation (DVN) : Free Stock Analysis Report
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
Baker Hughes Company (BKR) : Free Stock Analysis Report
BioNTech SE Sponsored ADR (BNTX) : Free Stock Analysis Report
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