Since the vaccine-led recovery of oil prices, the energy sector has turned from the worst performer on the market to the top-performing sector, and analysts believe there is still upside for energy stocks and ETFs.
In early November, just before the first announcement of a successful vaccine trial and approval, the oil and gas industry was the biggest market loser of 2020, and also the worst performer on the market—ever.
However, the bull run in commodities, especially oil, is now making energy the top performer of the S&P 500 index.
Year to date to March 5, energy outperformed – by a mile – all other sectors in the S&P 500, including the index itself, data compiled by Yardeni Research shows. So far this year, the energy sector has rallied by 38.6 percent, compared to a 2.3-percent rise of the index. The second-largest sector in terms of gains, financials, had risen by 13.9 percent.
Analysts believe the energy sector still has room to rise.
“Within Value, we also want to highlight Energy as an area that we believe has staying power and should continue to be a key beneficiary of the commodity bull cycle,” Dubravko Lakos, head of U.S. equity strategist and global quantitative research at JPMorgan, wrote in a note dated Monday, as carried by CNBC.
Various Wall Street banks have recently upgraded their oil price forecasts in light of the recent rally and the surprise decision of the OPEC+ group to keep production unchanged in April, with small exemptions of a total of 150,000 bpd allowed to Russia and Kazakhstan.
Two weeks ago, Goldman Sachs expected Brent Crude prices to hit $75 a barrel in the third quarter this year, on the back of faster market rebalancing, lower expected inventories, and traders hedging against inflation.
Following last week’s OPEC+ decision to keep oil production flat in April, Goldman Sachs now sees Brent Crude prices hitting $80 a barrel in the third quarter, up by $5 compared to the previous forecast just ten days ago.
By Tsvetana Paraskova for Oilprice.com