A confluence of factors has increased the likelihood for the energy sector to outperform the overall market, in the view of economists at Charles Schwab. The fundamental backdrop has improved significantly. Growing demand for oil and constrained supply are bolstering oil prices, and energy companies are being more disciplined with expense and investment – together supporting attractive valuations.
Clean-energy initiatives are not an immediate threat
“The ongoing recovery of the global economy bodes well for rising oil demand.”
“Supply remains constrained by OPEC and cautious producers, and inventories are down – driving oil prices higher.”
“The expansion phase of the business cycle can support cyclical-value energy companies, and large diversified energy companies are becoming more disciplined with expenses and investment. Meanwhile, attractive valuations are reinforced by rising earnings expectations.”
“Except for some near-term headlines noise and measured rise in regulations, however, a dramatic impact from the clean energy movement on the energy sector landscape is likely years away.”
“Other near-term risks include economic threats to oil demand, geopolitical impact on supply, and market volatility.”
“Weighing the issues, we believe the Energy sector is poised to outperform during the next three to six months.”