Oil’s Surprising Domination Over Tech: An Overview
While technology, especially AI, typically steals the limelight, the unassuming oil sector is taking center stage in 2024. West Texas Intermediate crude prices have spiked by 13% this year, outstripping the Nasdaq 100’s meager 6% uptick.
Source: StockCharts.com
The Nasdaq 100, a weighted-average index, gives undue preference to larger companies like Microsoft, Apple, Nvidia, Amazon, and Meta, skewing its overall performance. For a more accurate representation, the Nasdaq 100 Equal Weight index removes this bias, revealing a staggering 4X advantage of oil over average Nasdaq 100 stocks in 2024.
Source: StockCharts.com
A Note on Tech Investments Amidst the Surge in Oil
Although long-term tech investments hold promise, the short-term forecast for AI stocks looks frothy. Expect some turbulence in the coming weeks. Contrastingly, the oil sector’s mean-reversion trade is showing sustainability.
As Louis Navellier suggested, anticipations of market adjustments imply an upcoming shift in trends. While tech may face a bumpy ride, the oil sector’s upward trajectory appears to have more staying power.
Since proposing the investment route in oil and gas stocks back in February, the returns have been substantial. ETFs like XLE and XOP have surged impressively, significantly outpacing the S&P and tech indexes.
Source: StockCharts.com
Upcoming Price Surge Predicted for Consumers
According to Andy Lipow of Lipow Oil Associates, consumers can brace themselves for a forthcoming rise in prices at the pump. The transition to costlier summer-grade gasoline blends by Gulf Coast refiners is expected to push prices up by 10 to 15 cents per gallon in the next fortnight.
The Upward Surge of Gasoline Prices in the Face of Geopolitical Tensions
The price for a gallon of gasoline in the United States now stands at $3.412, marking an increase of $0.156 per gallon (4.8%) from $3.256 per gallon just a month ago.
A Perfect Storm Brewing
This spike in gasoline prices couldn’t have occurred at a more inconvenient time. Refinery outages in the United States are coinciding with the commencement of driving season, leading analysts to caution that drivers might experience a surge in pump prices.
Projections indicate that prices are poised to climb even higher. Tom Kloza, the head of energy analysis at Oil Price Information Service, predicts an impending escalation in gasoline prices. The rationale behind this upward trajectory lies in the higher demand for summer travel, plummeting gasoline inventories, and ongoing refinery outages.
The Charm of Dividend Yields in Top Oil and Gas Stocks
Investors waiting for further price increases in the oil trade have an added advantage. Several major oil, gas, and pipeline stocks offer attractive dividend yields:
Chevron – 4.21%
Shell – 4.82%
Kinder Morgan – 6.40%
Hess Midstream – 6.87%
Enterprise Partners – 7.02%
The Unforeseen Call Option in the Oil Trade
The prevailing scenario in the oil trade relies predominantly on seasonality and OPEC’s supply cuts aimed at bolstering global oil prices. However, two wildcard factors could potentially send oil prices skyrocketing: Ukrainian drone attacks on Russian oil refineries and escalating Houthi assaults in the Red Sea impacting global shipping routes.
Ukrainian drone strikes have targeted Russian oil facilities, causing disruptions in refining activities. The persistent attacks point to potential supply interruptions, which could substantially impact the oil market. Additionally, Houthi attacks in the Red Sea have heightened global oil demand due to rerouted ships, further influencing oil prices.
The Strength of a Diversified Portfolio
A balanced portfolio remains essential for wealth growth during tumultuous market conditions. Diversification not only safeguards against volatile sectors but also taps into areas with lower valuations and potential for substantial gains.
In the words of Louis: “It’s crucial to have stocks that counter prevailing trends, emphasizing the significance of our Big Energy Bet.” Energy stocks thrive in the spring as demand rises and refinery maintenance tightens refined product supplies.
For more insights on top energy stock picks by Louis, a Growth Investor subscriber, click here to learn more.
May your investment decisions be sound,
Jeff Remsburg
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