Oil stocks to benefit from re-opening trade on Wall Street, says Chris Wood; Shell, Exxon, BP in focus
Jefferies’ global market strategist Chris Wood has picked oil stocks as his most favoured trade for the near term as cyclical stocks continue rallying on Wall Street. “In the short term, if GREED & fear had to favour one area of the cyclical trade the most it would be oil stocks,” the Global Head (equity strategy) said in his weekly newsletter. So far this year, the S&P Energy index has zoomed 41%, outperforming the S&P 500 which has managed to jump 14%. Oil prices have been inching higher as the demand outlook for crude oil improves with vaccines being rolled out across the globe.
Oil stocks well placed for near term
Chris Wood said that oil is the commodity most geared to the re-opening trade as the vaccine rollout proceeds. Brent Crude oil prices breached the $70 mark on Wednesday morning as OPEC and its allies decided to roll back curbs as demand outlook improved with encouraging macro data from economies such as the United States. “A further rise in the oil price to say, $80 per barrel or higher is also likely to intensify the inflation scare which has already commenced,” Chris Wood added.
Stick to cyclical commodity trade
Commodities have been buzzing across global markets, recovering from their 2020 lows as the world inches closed to the old normal. Steel prices have gone up, helping a significant rally in steel stocks. “The view here remains firmly that investors should stick with the pro-cyclical commodity trade, particularly energy,” Chris Wood said.
Although China has signalled at controlling the surging commodity prices, Chris Wood remains adamant. “This is despite Beijing’s recent understandable efforts to talk down commodity prices, and despite concerns that a successful revival of the Iran 2015 nuclear deal will cause increased supply on the world oil market. Indeed both concerns should be used as opportunities to add to positions in the likes of copper stocks and oil stocks,” he added.
Tracking performance of Oil stock
-Shares of Exxon Mobil Corporation have zoomed 46% this year
-Despite some volatility along the way, Royal Dutch Shell still trades 10% higher year-to-date
-Chevron Corporation is up 26% so far in 2021
-BP Plc on NYSE has jumped 30% since the year began
-United States Oil Fund, a listed ETF tracking the WTI Crude oil is up 43% in 2021
-Occidental Petroleum Corporation has clocked in 63% returns year-to-date