Long-beleaguered crude oil made an unexpected comeback this week with prices going north for the second consecutive day on Tuesday. The two global benchmarks, the Brent crude futures and the U.S. crude’s West Texas Intermediate (WTI) futures rose 1% and 3%, respectively. The upside is significant since only last week the commodity dropped to levels not seen since Feb 2009.
Our bullishness is confirmed by the fact that WTI crude zoomed from around $34 per barrel to above $37 barrel in the last couple of trading sessions. And if we adhere to the adage that it’s better late than never, we see brighter days this week for investors in this space.
As a result on Tuesday, the Energy Select Sector SPDR (XLE – ETF report) gained 2.5%. Dow components Exxon Mobil Corp. (XOM – Analyst Report) and Chevron Corp. (CVX – Analyst Report) advanced 4.5% and 3.8%, respectively. Other key stocks from the energy sector such as Occidental Petroleum Corp. (OXY – Analyst Report), ConocoPhillips (COP – Analyst Report) and Schlumberger Ltd. (SLB – Analyst Report) moved up a respective 2.7%, 2.1% and 1.0%.
The surprise was complete for the broader market which almost discounted the commodity after the latest buzz about the lifting of the four-decade-old ban on U.S. oil exports. The market’s primary concern was that the commodity’s steep decline reflected a bigger-than-expected drop in demand as a result of decelerating global economic growth. Questions about China’s economic outlook and weakness in Brazil, Russia and many other emerging markets stem from these growth worries.
Proxy Revival?
The question that now comes first to the minds of investors ravaged by the multi-year-long crude price free-fall is the sustainability of this revival. U.S. crude futures witnessed a fall from the skies from Jun 2014 ($107 per barrel) to the deep pit of around $35 per barrel recently. The cascade was due to bearish comments from International Energy Agency (IEA) that sees the global oil glut as aggravating next year in the face of slowing demand growth.
