The most resilient sector in the US stock market: Energy stocks

The geopolitical risks in the Middle East continue to escalate, and energy stocks continue to rise.

Despite the weakness in the overall market, the rise in oil prices has boosted the S&P 500 energy sector, which rose nearly 1% this week and 4.5% last week. Since the outbreak of the Israeli-Palestinian conflict, oil prices have risen for two consecutive weeks, with Brent crude oil up nearly $8 per ton, an increase of more than 9%; WTI crude oil has risen by about $5.5 per ton, an increase of more than 6%.

Last week, US oil rose by 5.92%, the largest weekly increase since September 1st and the second largest in the past six months. Brent crude oil rose by 7.46%, the largest weekly increase since February 10th.

As of Friday, Brent crude oil was reported at $92.37 per barrel, and WTI crude oil was reported at $88.3 per barrel.

CIBC Private Wealth's senior energy trader, Rebecca Babin, said:

"If the conflict between Israel and Hamas spreads throughout the Middle East, oil prices are likely to easily exceed $100 per barrel."

The stock prices of energy giants, including Chevron and ExxonMobil, have also risen.

However, the rise in oil prices has intensified the risk of weak energy demand, which may further push up oil prices. In 2021, due to the shortage of natural gas supply in Russia and the reduction of global oil flow, energy prices have soared, reaching the largest increase in international oil prices in the past twelve years.

In addition, the tightening global financial environment and the slowdown in economic activity have put pressure on energy demand itself. According to media reports citing the views of traders, some of the demand for natural gas may never recover.

Babin added:

"Recently, when Brent crude oil prices exceeded $95 per barrel, demand seemed to be limited."

In addition, some emerging countries are also negatively affected by the strong US dollar's impact on their purchasing power, and the rise in oil prices will further hit their domestic oil supply.

At present, there is still room for energy stocks to rise. Some believe that continuing to buy is equivalent to betting on the further escalation of the situation in the Middle East. Cole Smead, President of Smead Capital Management, stated, "Global conflicts will only lead to an increase in the expected demand for energy prices."