Since last summer in July 2017, the rally in oil prices continued, nearly uninterrupted. The oil prices dipped in February, only to march higher.
With disruptions in the Middle East and the start of the Spring/Summer season, chances are good that the sector still has more upside.
Now that the oil sector (OIL) is up over 70%, value investors may either wait for a pullback or for those invested already, continue holding. PBF Energy (NYSE: PBF), a long-time value play in the refinery sector, is still trading at a discount with a P/E of 10.7 times (9.3 times forward earnings). BP plc (NYSE: BP), whose dividend yield is 5.59%, may finally break out above $44 and trade at $50 a share. At a 15x forward earnings P/E, the company may potentially grow profits faster than its competitors on higher energy prices.
BP spent years slimming down its business, selling its assets to cut debt (debt/equity is 0.64 times) and is earning upgrades from analysts, including those from Citigroup and RBC Capital Markets. Only Morgan Stanley downgraded the stock on Feb 13 to equal weight, a call that is proving wrong so far.
Takeaway
Heightened disruptions in oil production and trade may last longer than thought as U.S., Britain, and France strike on Syria. If prices do pull back, investors should not expect that lasting long. With inflation, higher interest rates, and global growth rising this year, energy demand is stronger than ever.
Disclosure: I own shares of BP plc.
