Earlier this week, stock investors celebrated the news that another promising coronavirus vaccine candidate may be available soon. This blew up the main references of the market. However, it did even more good for an area of the market that was crushed even before COVID-19. Finally, some investors are seeing signs of life in an area that many had left for dead.
Oil stocks light up
Energy markets have not cooperated with investors for years. Today, there are signs that investor sentiment towards oil and gas companies may finally start to improve.
In 2014, oil exceeded $ 100 a barrel. Then, the emergence of abundant reserves from shale oil deposits massively shifted the market, causing prices to drop sharply. This has weakened the political strength of oil-producing countries that depend on income from crude sales to boost their local economies. In the years that followed, the degraded relations between these countries hampered efforts to control production and restore the balance between supply and demand. The COVID-19 pandemic has only worsened conditions for the industry by temporarily drying up demand.
Now, however, the positive news about the coronavirus vaccines is pushing value investors to seek bargains in energy. You can see the influence of value hunters across the oil and gas spectrum from Monday’s price action:
- Major oil producers gain ground for the first time in some time, with 6% ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS.A) (NYSE: RDS.B) and an increase of 5% BP (NYSE: BP).
- Petroleum services companies have grown in concert with their exploration and production peers. Schlumberger (NYSE: SLB) led the way higher, with gains of 12%.
- Refining operations also take in steam. Oil Marathon (NYSE: MPC) on top of recent gains with a 9% hike on Monday, while Phillips 66 (NYSE: PSX) increased by 7%.
- Intermediate transport and storage games also performed well, especially Plains All American Pipeline LP (NYSE: PAA), up 7%, and Partenaires Western Midstream (NYSE: WES) with an increase of 9%.
Can it last?
Energy has been on a downward spiral for a long time, so even a burst of optimism is good news. But it will take sustained increases in oil prices to help many companies. It will take much more than a slight increase in crude prices between $ 41 and $ 42 per barrel to reverse the trend.
Nonetheless, as we have seen with travel stocks, the beaten sectors of the stock market can stage powerful rallies. If energy markets can hold their own and build on their recent gains, oil and gas stocks may still have a long way to go.