Energy stocks are bucking the stock market’s September decline.
Shares of oil-and-gas companies are leading the S&P 500’s 11 sectors so far this month, rising nearly 2%. Stocks like ConocoPhillips, Baker Hughes Co. and Occidental Petroleum are all up at least 4.9% in September. The broad U.S. stock-market index, meanwhile, has fallen 2%, stung by losses across nearly all of the other major market segments.
Investors’ enthusiasm for stocks has been tempered by concerns the market has run up too far too fast in recent months. Conflicting data on the health of the economic recovery and inflation and whether the Covid-19 Delta variant will add another dark chapter to the pandemic have also weighed on investors.
But energy stocks are climbing. A crimp in the supply of oil has pushed prices higher, helping to put energy stocks on a different path than the rest of the stock market. Hurricane Ida knocked out swaths of production after it tore through the Gulf of Mexico. Fires at oil facilities in Mexico and Russia, along with operational issues in Nigeria and Libya cut output further, all helping to send crude oil futures for October delivery up 5.1% so far this month.
“There’s just not enough being produced,” said Peter McNally, global sector lead for industrials, materials and energy at Third Bridge’s research arm. “To get back to normal, we’re going to have to manufacture more gasoline and the industry has to run harder.”
Last Tuesday, the International Energy Agency cut its supply forecast for the year by 150,000 barrels a day. The $23 billion Energy Select Sector SPDR Fund rose 3.7% the same day. The gains coincided with investors pouring roughly $1 billion into energy funds over the past week, the most since June, according to Bank of America Merrill Lynch.
Even before the raft of production problems hit, the resumption of travel and economic activity as the pandemic began to ease had translated into more oil usage. That has helped nearly two-thirds of energy stocks outperform the S&P 500 over the past 12 months, according to BMO Capital Markets, while the sector itself has posted a market-leading 29% gain for 2021 so far.
The same factors are playing out in the natural-gas market to the benefit of companies like Cabot Oil & Gas Corp., which is up 22% this month. Natural-gas prices in the U.S. hit more than $5 per million British thermal unit due to production bottlenecks and increased demand. Demand has been even greater in Europe, where an insufficient amount of wind has helped push natural-gas prices above $20, creating a bonanza for U.S. exporters, said Stewart Glickman, an energy analyst with CFRA.
With winter on the horizon, the near-term outlook for energy stocks remains bright, analysts and investors said. Some commodity analysts predict Brent crude prices will reach $100 a barrel in the third quarter, up from about $75 now. And if the economic recovery continues to strengthen, shares of energy firms are among the cyclical stocks best positioned to benefit, according to analysts at UBS Group AG’s U.S. wealth-management arm.
Energy stocks also stand to gain as an inflation play. Bank of America analysts have suggested using energy stocks as a hedge against inflation if necessary. The sector pays a 2.2% dividend yield, making it a better bet than negative-yielding Treasury inflation-protected securities, the bank added.
Beyond the winter, the picture gets fuzzier, creating a timing risk for investors if they stay in energy stocks too long, some analysts said. The U.S. Energy Information Administration slashed its 2022 oil-demand estimate by 240,000 barrels. Some forecasters predict a pullback in prices, too.
The Organization of the Petroleum Exporting Countries, for its part, recently forecast that demand next year will exceed pre-pandemic levels.
Prices may not collapse even if demand does recede, Mr. Glickman said, because oil and gas stockpiles are so low.
“It’s not like we’re bloated with inventory to begin with,” Mr. Glickman said.
This story has been published from a wire agency feed without modifications to the text
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