Reserve

Biden

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  Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our&nbsp;<a href="https://tokenist.com/terms-of-service/" style="text-decoration:underline;color:#3c7b7b" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">website policy</a>&nbsp;prior to making financial decisions. 
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<p class="has-drop-cap">The Strategic Petroleum Reserve (SPR) is at its lowest point since 1983, at 347 million barrels. Established in 1975 from the fallout of the 1973 oil embargo in the Middle East, SPR has a total capacity of 714 million barrels of oil.&nbsp;</p> 
<p>This puts the SPR level at less than half (48%). As the chart below shows, this is an anomalous level of energy security, having mainly remained flat since the mid-1980s.</p> 
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  <img decoding="async" width="970" height="647" src="https://tokenist.com/wp-content/uploads/2023/09/chart-1.png" alt="" class="wp-image-171280" srcset="https://tokenist.com/wp-content/uploads/2023/09/chart-1.png 970w, https://tokenist.com/wp-content/uploads/2023/09/chart-1-300x200.png 300w, https://tokenist.com/wp-content/uploads/2023/09/chart-1-768x512.png 768w, https://tokenist.com/wp-content/uploads/2023/09/chart-1-650x434.png 650w" sizes="(max-width: 970px) 100vw, 970px"> 
  <figcaption class="wp-element-caption"> <em>Image courtesy of EIA</em> 
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<p>Because the Strategic Petroleum Reserve (SPR) is a buffer against supply disruptions, it sends out important signals. For one, the stock energy market prices higher oil prices as the government’s ability to withdraw from SPR wanes.&nbsp;</p> 
<p>This has already come to fruition in the last three months, as Brent crude oil price jumped by 21% to $90.84 per barrel, the level it was in November 2022. Second, this also means that inflation is heading for reacceleration.&nbsp;</p> 
<p>After all, the <a href="https://tokenist.com/biden-administration-continues-downplaying-inflation-calls-data-out-of-date/" rel="noopener noreferrer nofollow" class="deco-link">Biden admin had identified energy costs</a> in July 2022 as contributing half to the inflation increase. However, for energy stock investors, oil prices getting to the highest level this year translates into gains.</p> 
<h3 id="performance-of-the-energy-sector-against-other-sectors">Performance of the Energy Sector Against Other Sectors</h3> 
<p>S&amp;P 500’s energy sector (SPN) adds 7.5% weight to the overall benchmark index. In other words, this is how much SPN contributes to the total market capitalization of the S&amp;P 500, presently holding at $37.16 trillion.</p> 
<p>Expectedly, SPN followed closely as Brent crude oil went up since Q2 (ending in June). Overall, the S&amp;P 500’s energy sector increased 11% this quarter. At the same time, the S&amp;P 500 (SPX) rose by 1.87%.</p> 
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  <img decoding="async" width="1024" height="776" src="https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257-1024x776.png" alt="" class="wp-image-171293" srcset="https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257-1024x776.png 1024w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257-300x227.png 300w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257-768x582.png 768w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257-650x493.png 650w, https://tokenist.com/wp-content/uploads/2023/09/Screenshot-2023-09-11-170257.png 1141w" sizes="(max-width: 1024px) 100vw, 1024px"> 
  <figcaption class="wp-element-caption"> <em>Brent crude oil futures (BZ) vs S&amp;P 500’s energy sector (SPN). Image courtesy of TradingView</em> 
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<p>Across individual energy stock companies, Marathon Petroleum Corporation (MPC) yielded the largest gains in the same period, at 32%. Halliburton (HAL) closely followed at 28% and ConocoPhillips (COP) at 18%.&nbsp;</p> 
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<h3 id="oil-production-cuts-to-align-with-recessionary-expectations">Oil Production Cuts to Align with Recessionary Expectations?</h3> 
<p>For 2023, recessionary expectations are a mixed bag. On one hand, the European Commission forecasted lower DGP for the eurozone’s five largest economies.&nbsp;</p> 
<blockquote class="wp-block-quote"> 
 <p><em>“While we avoided a recession last winter, the multiple headwinds facing the EU economy this year have led to somewhat weaker growth momentum than we projected in the spring,”&nbsp;</em></p> 
 <p>Paolo Gentiloni, European Commissioner for Economy on Monday’s press conference</p> 
</blockquote> 
<p>To the EU’s economic engine, Germany, this means a contraction of 0.4% vs. the previous forecast of 0.2% growth. Disrupting cheap Russian gas devastated German industry, making it less competitive on the international stage. Year-to-date, Germany’s Industrial Production Index hit <a aria-label=" (opens in a new tab)" href="https://ycharts.com/indicators/germany_industrial_production#:~:text=Germany%20Industrial%20Production%20Index%20is,2.25%25%20from%20one%20year%20ago." target="_blank" rel="noopener noreferrer nofollow" class="deco-link">95.70</a>, the year’s lowest point.</p> 
<p>On the other side of the Atlantic, Goldman Sachs cut recession odds to 15% over the next 12 months. During the US banking crisis in March, the recession forecast was 35%. For Q3, <a aria-label=" (opens in a new tab)" href="https://www.atlantafed.org/cqer/research/gdpnow" target="_blank" rel="noopener noreferrer nofollow" class="deco-link">Atlanta Fed’s GDPNow model</a> now projects a bullish 5.6% growth momentum, oppositional to the eurozone’s contraction.&nbsp;</p> 
<p>However, this could be countervailed by the Federal Reserve if <a href="https://tokenist.com/investing/how-to-hedge-against-inflation/" rel="noopener noreferrer nofollow" class="deco-link">inflation</a> is invigorated. In addition to low SPR, higher oil price contribution comes from Saudi Arabia and Russia. As the largest crude oil exporters, they have extended oil production cuts through the end of the year.</p> 
<p>The Fed could make financial conditions even harsher with more interest rate hikes to counter the inflationary wave.&nbsp;</p> 
<blockquote class="wp-block-quote"> 
 <p><em>“There’s no doubt that dynamics around higher oil prices is going to create some anxiety for the Fed,”</em></p> 
 <p>Nate Thooft, chief investment officer at Manulife Investment Management</p> 
</blockquote> 
<p>Of course, higher oil prices would trigger higher transportation costs and spill over to products relying on plastics and fertilizers. If the Fed reacts to these price spikes with heavier hikes than expected, we may also be looking at <a href="https://tokenist.com/investing/investing-during-a-recession/" rel="noopener noreferrer nofollow" class="deco-link">less optimistic recession forecasts</a> for the US.&nbsp;</p> 
<p>Then, energy stocks could undergo another boom-and-bust cycle that is so prevalent in the commodity markets.</p> 
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<p><strong><em>Do you think we will have another US banking crisis if there are more interest rate hikes? Let us know in the comments below.</em></strong></p> 
<p>The post <a rel="noopener noreferrer nofollow" href="https://tokenist.com/spn-outperformed-all-other-sectors-this-quarter-amid-surge-in-oil-prices/">SPN Outperformed All Other Sectors this Quarter Amid Surge in Oil Prices</a> appeared first on <a rel="noopener noreferrer nofollow" href="https://tokenist.com">Tokenist</a>.</p>

SPN Outperformed All Other Sectors this Quarter Amid Surge in Oil Prices

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