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Investors should use the divergence in the performance of oil stocks and crude oil so far this year to sell energy stocks in the near term, Marko Kolanovic, JPMorgan’s chief global market strategist, says.
Kolanovic, still bullish on the energy sector in the longer term, believes that share prices could soon start to drop, he told clients in a recommendation note dated Thursday and quoted by Bloomberg.
Investors now have the opportunity to sell in the near term because “an enormous gap has opened between energy stocks and the price of energy commodities,” Kolanovic said.
JPMorgan’s chief strategist sees share prices dropping by more than 20% in the short term.
“This is a tactical short-term call, and, given that longer term we still believe in the energy supercycle and broad market recovery after a Fed pivot, a significant pullback (20-30%) in energy stocks would present a great entry point,” Kolanovic wrote in the note to clients.
The energy sector in the S&P 500 index had jumped by 52.4% year to date to December 8, according to S&P data compiled by Yardeni Research. That’s the only major S&P 500 sector with gains so far this year. Within the energy sector, the Integrated Oil & Gas subsector has surged by 63.2% year to date, Oil & Gas Equipment & Services by 49.9%, Oil & Gas Exploration & Production is up 45.2%, and Oil & Gas Refining & Marketing has jumped by 55.5% so far this year.
Crude oil prices, however, have just erased all the gains from 2022, as Brent Crude slumped to below $80 per barrel on Tuesday, to the lowest level in a year. Before this week, the last time Brent had settled below $80 per barrel was in early January, more than a month before the Russian invasion of Ukraine, which roiled global energy markets and sent crude oil prices above $100 per barrel in the spring.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com