US energy shares lost ground and underperformed in 2017, but in 2018 as oil prices continue to climb, investors are putting their money back into energy stocks. ConocoPhillips photo.
US energy shares rise alongside oil prices
US energy shares are on the rise in 2018 and some forecasters predict first-quarter earnings could be up as much as 69 per cent over 2017. This would be the highest percentage gain of any S&P 500 sector, according to data from Thomson Reuters.
After underperforming last year, energy stocks are climbing this year and enticing investors who see the trend in crude prices holding.
Since the beginning of April, US energy stocks in the S&P 500 are up 7.5 per cent, compared to a 0.4 per cent decline in the overall S&P 500.
Oil prices have risen to their highest levels since late 2014 due to the OPEC supply cut agreement and rising demand. Investors and strategists say the increase in crude prices will support energy earnings growth, particularly for companies involved in exploration and production (E&P).
E&P companies are projected to have the biggest year-over-year increase.
This week and next, energy companies will report their first quarter earnings. So far in 2018, in general, energy shares have not caught up with rising oil prices which have jumped about 12 per cent this year to date.
“The stock prices are still not reflecting the earnings power that’s likely to show up here in this quarter and for the year as a whole,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management told Reuters. BNY Mellon has been overweight the energy sector.
“Energy prices are more than likely to stabilize here between the $60 and $70 range as opposed to the prior range of $50 to $60.”
According to Reuters, the rise in energy shares has boosted the sector’s valuations, but some strategists say they are not concerned about these higher levels yet.
The sector “continues to be in the middle innings of a rotation back in,” and that “valuations don’t worry us,” wrote Lori Calvasina, head of U.S. equity strategy for RBC, in a recent note.