When the steep selloff in technology stocks intensified, investors parked their cash in value sectors. Energy stocks rose in 2022 as a result. The rally will last as long as tensions in Ukraine and Russia persist. More importantly, stocks like Exxon (XOM) and Chevron (CVX) will find new highs as long as oil prices rise.
Oil prices briefly corrected lower late last year when markets thought the Omicron variant would disrupt energy demand. Instead, travel demand is increasing. The oil supply remains tight. Moreover, OPEC+ has no plans to flood the market with excess supply to hurt other producers. Investors should brace for a tight oil supply continuing for at least the next few weeks.
Expect the energy stock rally to continue longer. Oil prices have a better chance of holding the $74 - $85 level this time. Energy producers may limit output to keep prices from falling. This will add to inflationary pressures. Until the central banks raise rates, the economy will continue to run hot. This will stimulate demand and add to higher oil demand.
Your Takeaway
The Fed will not raise rates until March at the earliest. This event may lead to an eventual economic slowdown, albeit slightly. Oil prices may dip by then, slowing the energy market rally.
