In 2023, while the stock market experienced a significant surge, the energy sector witnessed a decline. However, in the first quarter of 2024, energy stocks started to soar, even outperforming the highly popular tech index. This unexpected trend has drawn attention as investors had been primarily focused on big tech stocks amid the artificial intelligence (AI) boom. Surprisingly, it turns out that the underdog in this scenario is the oil sector.
The surge in oil prices has played a crucial role in this surge. In mid-March, the WTI crude oil futures price broke the $80 per barrel mark for the first time since November of the previous year and has since stabilized at this level.
Refinery stocks have shown even stronger growth, with the VanEck Oil Refiners ETF rising by over 15% in the past 5 months, outperforming integrated companies like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) as well as the price of crude oil itself. This is attributed to the greater impact of the Russia-Ukraine conflict and the situation in the Red Sea on refinery production capacity compared to crude oil output.
The upcoming OPEC oil market monitoring meeting scheduled for April 3 is a key point of focus. Since OPEC’s announcement of production cuts on March 3, international oil prices have gradually risen, with both New York oil prices and London Brent oil prices increasing by more than 5%. Additionally, expectations for increased crude oil demand and ongoing geopolitical tensions are providing sustained support for international oil prices.
Ben Cook, Portfolio Manager at Hennessey Funds, likened the OPEC meeting to a Federal Reserve decision, emphasizing the importance of confidence conveyed by the outcome. Analysts at JPMorgan Chase suggested that Russia’s decision to reduce production could potentially push Brent crude oil prices to $100 per barrel this year, with current oil prices in the $80 range possibly reaching $90 by May.
The unexpected surge in the energy sector, especially in the oil and refinery stocks, provides a clear counterpoint to the prevailing tech-focused investment landscape, underscoring the complexity and unpredictability of financial markets.