The Energy Sector Sparks Trader Interest As Crude Prices Rise

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

After spending the better part of the past two years below the critical $60 a barrel level, oil prices have staged an unexpected comeback in the initial weeks of 2021, along with the rest of the energy sector. Since starting January below $50, the spot price for both Brent and WTI Crude have increased by about 25% in just six weeks.

Along with rising prices, oil and gas explorers and produces like Exxon Mobil Corporation XOM, ConocoPhillips COP and Schlumberger Limited SLB have also seen heightened trader interest through this period, with many stocks in the industry popping above six-month highs.

As energy traders closely watch the action playing out across the global oil market, retail traders hoping to capitalize on the renewed demand in energy would do well to research stocks that stand to reap the most reward from the heightened demand using institutional-quality analytics and A.I.-enabled tools.

An upcoming free demonstration from trading research platform VantagePoint will explore how the software can help traders forecast market trends days in advance and improve accuracy up to 87.4%. Traders looking to explore how predictive insights might help trade the energy sector or any other area of the market should sign up now.

Before then, let’s take a look at some of the factors that are contributing to the rise of oil and energy stocks and whether the recent momentum can be sustained.

Price Up, Inventories Down

To begin, analysts are keen to point out that it may still be early to call the rally a true comeback for the beleaguered oil market, especially given the longstanding supply glut that has kept crude prices muted.

However, action from OPEC+ nations over the past few months has kept new production low and diminished domestic oil and gas inventories, according to the Energy Information Administration’s recent weekly report on the U.S. oil supply and production. OPEC’s decision to cap production for February at least ensures some stability after the volatility that has plagued the market since 2019.

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Adding to this current supply squeeze is recovering oil and gas demand in major markets like the U.S. and India. This heightened demand comes as countries hope to have the pandemic under control by the time the travel-heavy summer months roll around, which may further increase demand as airlines look to scale up their passenger operations.

And while the price of oil may fluctuate based on the state of pandemic into 2021, the current levels being set by the commodity will nonetheless help improve margins among the key players in the industry.

Revenue Recovery

Already, oil and energy majors like the aforementioned Exxon Mobil and ConocoPhillips have shown some added revenue strength in the final months of 2020, according to the companies’ recently released Q4 earnings results. While still recovering from the energy market crash last summer, both companies have posted top-line sales more than 40% higher than the lows they set back in Q2 2020. Earnings beats from exploration and production concerns like Schlumberger and Kinder Morgan, Inc. KMI also cast the sector in a better light than prior quarters.

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In addition to the upward trend in crude price potentially increasing the margin among these firms, other near term factors could further tighten supply and improve price stability in the coming months.

Not the least of these factors is the recently-inaugurated Biden administration, which enacted recent executive actions blocking the construction of the Keystone XL pipeline and put a moratorium on new domestic land leases and drilling. Initiatives like these, as well as the administration's overall emphasis on transitioning to clean and renewable energy sources, may increase U.S. demand for imported oil in the near term and provide OPEC greater global price control.

But while ambitious climate change goals like wide scale electric vehicle use and renewable energy production could eventually lead to an end of the global oil industry as we know it, the near term picture for energy is looking better than it has in years.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.