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Energy Sector Rebound: 3 Stocks Set to Surge Amid Rising Oil Prices

Mike Cianciabella | October 4, 2024

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Energy Sector Rebound: 3 Stocks Poised for Strong Gains

The energy sector is witnessing a robust rebound spurred by escalating tensions in the Middle East, particularly following Iran’s missile strike on Israel on October 1. While the immediate physical damage from this incident was minimal, the geopolitical repercussions have been profound, raising fears of further conflict and potential disruptions to global crude oil supplies. Given Iran’s critical role as an oil supplier through the Strait of Hormuz, any extended conflict in the region could carry severe ramifications for global energy markets.

Oil Surges in Response to Conflict in the Middle East

In reaction to the heightened tensions, oil prices have surged. West Texas Intermediate (WTI) crude oil prices increased by 2.44%, closing at $69.83 per barrel, while Brent crude rose by 2.6%, settling at $73.56 per barrel. These price increases signify growing concerns that further conflicts in the Middle East might disrupt oil supplies, particularly if retaliatory strikes target Iranian oil infrastructure. As a result, the energy sector has followed suit, with the Energy Select Sector SPDR Fund (NYSE: XLE) experiencing a notable jump of 4.08% for the week, breaking out of a recent downtrend and surpassing critical moving averages. This resurgence positions energy stocks as enticing opportunities for investors looking to profit from rising oil prices. Here are three energy stocks showing strong relative strength in light of this week’s oil price surge.

Technical Breakout Positions ExxonMobil as a Top Energy Stock

ExxonMobil (NYSE: XOM), the largest oil company in the United States and a principal holding in the XLE ETF, has a market capitalization of $479 billion. This week, the stock surged by an impressive 5.8%, breaking out of a lengthy consolidation phase and positioning itself just 1.8% shy of its 52-week high. As a primary beneficiary of rising oil prices, ExxonMobil is poised for significant revenue growth if crude supplies face disruption, particularly due to its extensive upstream operations that heavily rely on oil production.

Moreover, ExxonMobil’s vast global footprint serves as a hedge against regional supply risks, allowing the company to maintain production stability despite geopolitical turmoil. With a dividend yield of 3.13%, ExxonMobil presents income-oriented investors with a dependable payout while also providing upside potential from rising oil prices. From a technical viewpoint, the breakout above consolidation levels heralds a bullish trend, making it an attractive choice for investors aiming to enter the energy sector.

Hess Corporation Rallies 6%, Leveraging Geographic Diversification

Hess Corporation (NYSE: HES), while smaller than ExxonMobil with a market capitalization of $43 billion, has emerged as one of the best-performing energy stocks this week, showcasing a robust increase of over 6% following the escalation of tensions in the Middle East. Hess operates in two segments—Exploration and Production and Midstream—with a focus on crude oil, natural gas liquids (NGLs), and natural gas production.

Unlike some of its competitors, Hess is less exposed to risks associated with the Middle East, with its principal operations situated in the U.S., Guyana, and the Gulf of Mexico. This geographic diversification insulates Hess from immediate geopolitical risks in the region, enabling the company to capitalize on rising oil prices while avoiding comparable levels of supply disruption risk.

XLE ETF Signals Bullish Trend, Providing Diversified Energy Exposure

The XLE ETF (NYSE: XLE) serves as an excellent option for investors seeking broad exposure to the energy sector. The ETF, which tracks the performance of the Energy Select Sector Index, includes significant holdings in prominent U.S.-listed energy companies like ExxonMobil, Chevron, and ConocoPhillips. So far this year, the XLE has risen 8.2% and recently broke through a critical resistance level at $90, signaling a bullish trend.

With a dividend yield of 3.55% and a low expense ratio of 0.09%, XLE offers investors an appealing income stream while providing diversification across the energy sector. The ETF’s holdings span various sub-industries within energy, including oil, gas, and energy equipment and services, making it a more diversified avenue for gaining sector exposure compared to selecting individual stocks. Current analyst ratings suggest a Moderate Buy for the ETF, with a consensus price target indicating a potential upside of 16.29%. This makes XLE a compelling choice for investors looking to tap into the broader energy sector while minimizing the risks associated with investing in individual equities.

In conclusion, as geopolitical tensions continue to shape the energy market, investors may find lucrative opportunities within the sector. Companies like ExxonMobil and Hess, along with diversified options like the XLE ETF, present strong cases for investment as the energy sector rebounds and oil prices climb.