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Big Tech’s reign over the market might was remarkable since the onset of this year, but this pioneering role is facing a challenge now as assets linked to oil, and broadly energy are surpassing the performance of Wall Street’s Big Tech. After a stellar first quarter, energy stocks have roared out of the gate in 2024, leaving technology giants in the dust.
Energy Takes the Lead
With a gain of more than 10%, energy became the best-performing sector in the S&P 500 last month. This remarkable increase outpaces the performance of the next closest sector, utilities, which rose by 6.3%, and even outpaces the 3.1% increase in the overall market.
Several things can be blamed for this change. First, due to international events such as the continued tensions in the Middle East, drone strikes on Russian facilities, and export restrictions imposed by Mexico, oil prices have increased by around 15% so far this year. Furthermore, the market expects OPEC+ to continue cutting production when they meet on Wednesday, April 3.
Oil Boom Benefits Mid-Sized Producers
The mid-sized oil companies that have the most to gain from higher oil prices are the focus of investors. These businesses frequently provide more clout to fluctuations in the price of the commodity. One such example is Diamondback Energy, which has gained 28% so far this year and saw a strong surge in March.
Even analysts’ estimates for the oil sector’s profits are being revised. Although Wall Street initially anticipated diminishing earnings, others are starting to get bullish, such as Morgan Stanley’s Mike Wilson. He believes that energy stocks will continue to outperform due to a mix of factors including higher oil prices, positive earnings revisions, robust sector performance, and appealing valuations.
Refineries Warm Up
Beyond discovery and extraction, there is good news. With the VanEck Oil Refiners ETF up more than 15% over the last five months, refiners have been enjoying an even longer hot streak. This increase is probably the result of increasing controls over the supply of refined products, which have been made worse by the disruption of Russian facilities brought on by the conflict in Ukraine.
US Increases Production
To supply the demand from throughout the world, the US is likewise doing more. The US Energy Information Administration (EIA) reported a record high of 6.1 million barrels of petroleum exported daily in 2023, a trend that’s likely to continue. Next week, the EIA will make public its revised projections, which will shed further light on US production trends going forward.
Energy’s Bright Future
Although there are still some unanswered questions about the oil market’s volatility and the outcome of the OPEC+ summit, the energy sector’s future seems promising overall. Energy companies may continue to outperform their tech rivals due to a number of variables, including rising oil prices, increasing earnings estimates, and favourable valuations.
