- Today, the price of oil has once again surged, this time to more than $113 per barrel
- Shares of various oil stocks are seeing heavy buying pressure on reports that Covid-19 lockdowns may be easing in China
- Until inflation is tamed, these energy stocks appear poised to continue running
Today’s price action in the broader markets has been interesting. There is a broad divergence building among sectors, with energy stocks vastly outperforming their high-growth tech peers. This continued rotation away from growth and toward value has benefited investors in oil stocks greatly thus far this year.
Indeed, today’s price action in oil stocks has been downright remarkable. Shares of Indonesia Energy (NYSEMKT:INDO), Imperial Petroleum (NASDAQ:IMPP), Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are all up in a big way. These four oil companies have seen their valuations rocket higher, with Indonesia Energy and Imperial Petroleum leading with gains of 30% and 15%, respectively. Chevron and Exxon Mobil are both up roughly 3% at the time of writing.
There are a number of reasons for today’s massive increase in these three large-cap names. Chief among the catalysts investors are watching is news that Shanghai may be coming out of its multiweek-long Covid-19 lockdown shortly. Optimism around an economic reopening in China has boosted global demand expectations. Accordingly, being the global commodity it is, crude oil futures have seen robust buying pressure today.
Let’s dive into why investors are viewing this catalyst as such a big deal.
Oil Stocks Surge On Potential Demand Catalyst
The potential for Chinese demand to come back onto the market is a big deal for investors in oil stocks. The price of oil inherently impacts the bottom lines of producers, such as the aforementioned companies. Accordingly, both the supply and demand side of the equation for oil are important for investors to consider when thinking about the short-term prospects of these companies.
Extended lockdowns in China have been one of the key catalysts for recent selloffs in the price of oil. Still hovering around multi-year highs, the price of oil isn’t cheap. However, today’s move higher indicates just how important Chinese demand is to the global energy market.
According to recent reports, lockdown restrictions may ease in the coming weeks, with some measures lifting as soon as this week. Should the Chinese economy fully reopen, investors have real reason to believe that demand will increase.
Right now, I think investors have no choice but to be bullish on oil stocks. Commodities across the board are likely to continue to remain at elevated levels until the global geopolitical environment changes. With no catalysts for change in sight, investors are seeking refuge in oil stocks. And I don’t blame them.
On the date of publication, Chris MacDonald 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.
