Once again, this year, energy has become the Wall Street darling just like last year. With the rally in oil prices and an economic recovery expectation due to the pandemic, the sector is the S&P 500’s best-performing sector. The abnormal weather conditions of Texas this week led to the rallying prices.
The state’s deep freeze became the reason for the slump of 30% of national oil production, making WTI $61+ a barrel. According to the industry insiders, the production had reached a 40% slump by Thursday, claimed Bloomberg. This situation has prompted the analysts to revise their expectations for the oil and energy industry.
Tom Lee of Fundstrat, for example, in a note to clients, quoted by Insider, said the energy stocks could gain another 66% if the oil barrel price hits $80. The analyst said, “So the interesting takeaway is that energy stocks still seem to have comparative upside given the sizable move in crude oil prices.”
The duration of this upside cannot be predicted as it all depends on Texas’s weather conditions. The latest forecasts suggest that the state will witness another round of winter weather before temperatures reach the year’s average. With power outages shutting down refineries, oil production recovery could take much longer even after the weather returns to normal.
The oil prices will stay up or go higher along with the duration of the freeze. As the U.S. becomes one of the world’s biggest oil exporters, the high oil prices are affecting the whole world. The prices and energy stocks may tone down once Saudi ends the voluntary 1-million-BPD production cut.