Energy companies in the U.S. had a particularly tough ride in the last three years with extreme price volatility riddling the space. At the beginning of 2017, WTI crude was trading at the lower end of the $50 range, Brent Crude was just short of the $60 mark and natural gas traded near $3.50. Experts had already written off the sector and the future seemed bleak.
However, it seems that following an extended period of relative weakness, energy stocks are finally on their way to recovery. With crude now back to more than $50 and natural gas revolving around the pivot of $3, the panic that swept across the market seems to have ebbed. The sector is now better off than it was in the early part of 2016.
The recovery in energy prices has been attributed primarily to a series of hurricanes which ravaged the energy belt of the United States toward the end of the third quarter, causing numerous refinery shutdowns.
Moreover, the U.S. economy expanded at a solid 3% seasonally adjusted annual rate in the third quarter, according to Commerce Department data, following 3.1% growth in the prior quarter. Such favorable economic conditions are usually backed by a steady rise in energy prices. This is why investing in energy mutual funds would be wise at this point.
OPEC’s Role in Boosting Energy Prices
The rapid decline of oil inventories in recent months has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. Moreover, energy bodies OPEC and IEA both recently raised global oil demand forecasts for this year. Also, supply from the 14-member OPEC cartel is set to remain constraint for at least the next six months, helping to tighten the market significantly. Adding to the positive momentum, OPEC and Russia claimed to be on the right track in clearing the global oil glut with half the job done.
With fundamentals pointing to a tighter market, oil ended the third quarter at $51.67 per barrel, up about 10.5% sequentially. A year ago, crude futures hovered around the $45 per barrel mark.