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Big Oil is trumping the Magnificent Seven on the stock market this year in an oil stocks rally that few had expected a few months ago.  

Energy stocks have outperformed the top tech stocks this year as the market has grown more bullish on oil and crude prices rallied at the end of the first quarter and at the start of the second quarter.

How long and how high the so-far quiet rally will go will depend on the oil price trajectory this year.  

In recent weeks, analysts have started to raise earnings projections for Big Oil's performance this year amid rising crude oil prices. Moreover, energy company valuations continue to trade at discounts to the S&P index and the energy sector continues to be the cheapest in the market, attracting investors who are bullish on energy.

Big Oil Beats Big Tech

Just a few months ago, not so many investors were bullish on oil and gas. All the market attention, and rightfully so, was on the Magnificent Seven - Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla - and their performance in 2023, when these stocks combined jumped by 75%. This compared to a 23% gain in the S&P 500 and an 11.6% collective rise in all the other 493 S&P 500 stocks last year.

But this year, the stellar performance has come from a more unexpected sector-energy.

The Energy Select Sector SPDR Fund (NYSEARCA: XLE) has risen by 15% year to date, compared to a 9% rise in the NASDAQ 100.

In March alone, the energy sector was the top performer among all 11 sectors in the S&P 500, with a 10% gain, compared to a 3.1% rise in the index. 

Last week, the energy sector in the S&P 500 posted its first record close since the middle of June 2014. 

"Most investors coming into 2024 weren't expecting anything out of energy," Roth analyst Leo Mariani told Bloomberg last week.

Energy stocks "roared back like a lion with an awesome March," Mariani added.   

For example, large companies like ExxonMobil, Chevron, and ConocoPhillips rose by 12% each last month, and refiners are also performing well, amid constraints in oil product supply due to crippled refining capacity in Russia and the re-routing of global seaborne fuel trade away from the Red Sea and Suez Canal.

Marathon Petroleum had surged by 42% year to date to Monday, while Valero Energy's stock had gained 38% year to date to April 8.

Rising oil prices and energy sector valuations at bargain prices have been attracting investors in oil stocks in recent months, analysts say.

Although oil prices are not the only reason for the energy stock rally, they have contributed a lot, as has an improved outlook on the economy.

$100 Oil?

With Brent oil prices hitting $90 per barrel at the start of the second quarter, energy stocks continued their rally from March. Oil prices rose last week to the highest level in nearly six months amid flare-ups in the Middle East and the OPEC+ group leaving its ongoing production cuts unchanged.  

With Russia now focused on production cuts and markets tightening, $100 oil is not to be ruled out, analysts say.  

"At face value, and assuming no policy, supply or demand response, Russia's actions could push Brent oil price to $90 already in April, reach mid-$90 by May and close to $100 by September," JP Morgan strategists led by Natasha Kaneva wrote in a note at the end of March, as carried by Yahoo Finance.

However, demand destruction could prevent prices reaching triple digits, JP Morgan says.

OPEC+ will also have a say in where oil prices will go in the summer and beyond. The group's current extra voluntary cuts expire at the end of June, and the alliance is meeting in early June to decide what to do next-roll over the output reductions or start easing the cuts.

Some see weaker refining margins as a drag on the oil price rally.

"If we look at the demand side, refinery margins have weakened with the recent move higher in crude oil," ING strategists Warren Patterson and Ewa Manthey wrote in a note on Monday.

"In order for this rally to be sustained (in the absence of supply disruptions or ratcheting up in geopolitical risks), we need to see refinery margins strengthening with crude oil," they noted.

With fairly good demand and stable prices around $90 per barrel OPEC+ is more likely to start easing the cuts from July, analysts say.

Goldman Sachs, for example, reckons that the group wouldn't want to push prices too high and potentially to $100 a barrel or above.

"While still a close call, we assume that OPEC+ won't push oil prices to extreme levels because the 2022 energy crisis showed that extreme prices destroy long-term residual demand for OPEC barrels by boosting non-OPEC supply and boosting capex in alternatives to oil," analysts at Goldman Sachs wrote in a recent note carried by MarketWatch.

By Tsvetana Paraskova for

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Tsvetana Paraskova

Tsvetana is a writer for with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More