After being written off earlier this year, energy equities are making a comeback.
So far in the third quarter, the energy sector of the 500 index has risen more than 6%, surpassing the benchmark index.
Energy stocks fell at the start of the year, disappointing investors’ expectations that last year’s boom would accelerate due to a lack of global supply.
Despite OPEC+ producers, the cartel of oil-producing countries plus Russia, announcing repeated supply curbs in an effort to boost crude prices, energy equities fell.
However, in recent months, energy stocks have begun to rise. Saudi Arabia cut output by one million barrels per day in July, a cut that was extended on Thursday until September. These actions represent the country’s largest reduction in output in years.
Crude prices have risen as a result, now hovering near $80 per barrel after falling below $70 earlier this year. Since June 11, US WTI crude oil prices have risen 22%, while global benchmark Brent has risen 19%.
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The reduced output coincides with a busy summer of travel, which has increased demand for crude. When combined with an improving economic outlook as investors become more confident that the Federal Reserve will soon stop rising interest rates, the picture for energy companies is looking better than it has all year.
“You kind of needed all of those things to happen at once,” Rebecca Babin, a senior energy trader at CIBC Private Wealth, explained.
Recent profit announcements from oil giants were a mixed bag. More importantly, the corporations provided forward-looking guidance, which has given investors cause to be positive.
Chevron stated on its post-earnings conference call on July 28 that it expects “to deliver strong free cash flow for years to come” and will begin share buybacks through the fourth quarter, indicating a likely boost in confidence in its prospective financial performance. Shell and BP have both upped their quarterly dividends.
OPEC+ is poised to maintain its overall oil policy at its meeting on Friday, according to Reuters. According to Babin, the group will likely continue to be careful in keeping oil prices high. This, combined with a predicted boost in demand as China strives to revitalize its economy, may provide additional support to crude prices – however, an economic downturn may put downward pressure on prices.
“If we see oil prices continue to rise here, it could be back to $100 a barrel,” said Derek Amey, co-chief investment officer at StrategicPoint.
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The jobs report will almost certainly be positive.
According to my colleague Alicia Wallace, markets and analysts are expecting another strong jobs report on Friday.
The monthly jobs report has provided plenty of excitement and shocks in recent months.
In July, for example, the US economy added 568,000 jobs, more than doubling the 250,000 projected by economists.
Come Friday, the government’s July jobs report might not be nearly so stunning. In fact, it could be rather mundane: a modest slowing in job growth and consistent unemployment.
According to Glassdoor’s head economist Daniel Zhao, “Our predictions are a little bit dull, which is a good thing. “Unexpected shocks are always a possibility, but things are going well right now.”