When OPEC+ announced a surprise supply cut, energy stocks soared in March. The gains proved transitory when supply outpaced demand. WTI crude closed at $72.67 last week, defying the OPEC+ intent.
Stocks like Exxon (XOM), Shell plc (SHEL), and Devon Energy (DVN) trade at steep discounts.
Energy investors should anticipate the oil price slump ending abruptly. The U.S. Memorial Day marks the start of the summer travel season. Not only will driving volumes increase for staycations, but air travel will thrive.
Oil prices are following metal and mining prices. The sector is bracing for a severe global recession. Copper, gold, and silver pulled back in recent weeks, creating a buying zone for resource investors.
China’s slow recovery from its three-year Covid lockdown is another unexpected event. Its weak economy is a result of Western firms pulling out their manufacturing from the country. Jobs for existing workers are not returning. In addition, graduating students from last year and this year will enter the workforce with fewer jobs available.
Once China supports and re-aligns its economy, demand will rebound. This includes a stimulus and an interest rate cut. Both measures will slow the decline in stalled real estate development. This should result in stronger Chinese consumer confidence. As manufacturing activity increases, so, too, will the energy demand.
