When WTI crude prices fell by more than $7 in a week, this signaled an end to the energy rally. At any time, OPEC may increase supply to maximize revenue. Russia may continue to pressure the U.S. by increasing output, too.
Stocks like Exxon (NYSE:XOM) and ConocoPhillips (NYSE:COP) are up 88% and 150% from 52-week lows.
With the green energy movement continuing to draw government money, "dirty" energy stocks may face selling pressure again. Investors may want to lock in profits in XOM and COP stock in case oil prices fall further.
The winter season in the West is ending, too. Demand for heating fuel will drop. Although the COVID-19 vaccination campaign may end the remote working trend, that is a long-term outlook. So, investors should not expect increased traffic from vehicles in the spring and summer periods.
Tourism-related travel may not include increased demand for driving. Instead, airlines are rallying because people may prefer international vacations instead of local ones.
The oil rally’s end also undermines the inflation risks. As energy prices fall, inflation concerns fall, hurting bond yields. This would lift stock markets, leaving energy stocks out of the next rally.
Investors should watch out for the rotation out of energy by getting out first. Taking some profits just in case is never a bad idea.
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