Despite reports of a looming energy crisis, it’s clear that we’re in the midst of an oil boom. And many companies are enjoying it thus far, as are their investors. Earlier today, the Wall Street Journal reported that energy and materials were the “best performing sectors of the S&P 500,” citing the rise in commodity prices that the sector has seen in recent weeks as the primary reason behind the gains that oil stocks have seen recently.
Oil Stocks: What’s Happening
Oil prices are approaching their highest point in three years at $83.86 per barrel, recently rising 1.8%. With these types of increases, it’s hardly surprising that oil stocks would be starting off on a good note today. In fact, four primary American oil drillers in the green.
Diamondback Energy (NASDAQ:FANG) is up more than 2% for the day so far, while Kinder Morgan (NYSE:KMI) is up 1.92%, and APA Corporation (NASDAQ:APA) is up 0.51%. All three are based in Texas. Adding to the mix is the New York-based Hess Corporation (NYSE:HES), whose shares have risen by 1.1% as of this writing. Hess’s gains could also be due in part to the fact that it was recently upgraded to a AAA ESG (environmental, social and governance) rating by MSCI (Morgan Stanley Capital Incorporated) after a decade of only receiving AA ratings. These gains across the sector, though, are due primarily to increases in oil prices spurred by spikes in demand.
What It Means
What does the immediate future look like for oil stocks as the boom continues to expand?
There’s always varying levels of uncertainty, but as of now, it looks promising. We’ve been watching the energy and materials sectors expand to meet the rising demand since the boom began. Right now they’re enjoying a rally spurred by commodity-driven price inflation. In addition, investors are hungry for stocks that stand to benefit from the vast economic recovery that the U.S. government is currently prioritizing, specifically those which fall into the clinical category. Both of those categories certainly apply to oil stocks.
That’s not to say that there aren’t causes for concern amid these surges in commodity prices. No sector is immune to the disruptions in both supply chain and labor. Industries across the globe are currently grappling with both. That said, oil companies don’t seem to be having too much difficulty meeting the increased demand that has generated these types of gains for their stocks.
Why It Matters
The inflationary pressure companies are currently feeling may be temporary, but they could last longer than many analysts initially expected. Things will need to settle more before we know for sure. Plus, as the holiday season approaches, many industries are bracing for disruptions as supply chain shortages threaten retail shopping and the labor shortage threatens air travel. Adding to it all is the ever-present risk of Covid-19 outbreaks, even though cases are decreasing at present.
With all that in mind, the demand for oil isn’t going to go away anytime within the next few months, even as green energy companies move to take advantage of the impending crisis. The future remains uncertain for oil stocks, but in the short-term, they show no immediate signs of slowing down. Investors should keep watching keenly.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.