The United States Oil ETF (NYSE:USO) dropped 1% but the Energy Select Sector SPDR Fund (NYSE:XLE) gained 0.5% on Wednesday as investors digest mixed data on the strength of the global economy and the outlook for energy demand.
Brent crude oil dropped 2.5% to $96.78 per barrel, while WTI crude fell just 0.5% to $91.11/bbl.
Mixed Signals: China’s ongoing COVID-19 factory shutdowns are easing global energy demand, but the latest data from the American Petroleum Institute (API) revealed gasoline inventories fell by about 3.4 million barrels for the week ended Aug. 26. However, crude oil stocks increased by about 593,000 barrels for the week. Analysts had expected a 1.5 million barrel drawdown.
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Oil and gas investors are positioning ahead of the upcoming OPEC+ meeting on Sept. 5.
Meanwhile, in Europe, Russia once again halted the flow of natural gas to Germany on Wednesday. Russian energy company Gazprom said its Nord Stream 1 pipeline, the largest gas supplier to Germany, will be shut down for maintenance for three days from Aug. 31 to Sept. 3. The United States Natural Gas Fund, LP (NYSE:UNG) traded lower by 1% on Wednesday.
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Buy The Dip? Energy stocks have been pressured along with much of the rest of the market in the past week, but analysts from Goldman Sachs and J.P. Morgan have advised investors to buy the dip.
“For a sector that is a direct input into every segment of the economy and a natural hedge against geopolitics and inflation, in our view, energy’s earnings stream is worth more than the current price-to-earnings ratio of 9.5 times,” J.P. Morgan analyst Dubravko Lakos-Bujas wrote.
Goldman Sachs is forecasting Brent crude prices will rebound and average $125/bbl in 2023.
Here’s a look at some of the biggest movers in the energy sector on Wednesday:
- Texas Pacific Land Corp (NYSE:TPL) was up 6.7%.
- Antero Resources Corp (NYSE:AR) was up 3.8%.
- Chesapeake Energy (NASDAQ:CHK) was up 2.5%.
- EQT Corporation (NYSE:EQT) was up 2.5%.
Benzinga’s Take: There’s no question the future of global energy is renewables, but the global supply shortages in 2022 have highlighted just how much the world still relies on oil, coal and natural gas.
The energy sector has been the top-performing sector in the market so far in 2022, and supply challenges will likely only get worse as Europe and the rest of the world approaches the winter months.