Energy sector’s fortunes reverse with oil surge
- Crude oil in biggest rally since early 2024
- So far, energy is 2025’s strongest sector
- Long-term oil picture highlights potential resistance
Just a little more than five weeks after “Oil slump tests energy sector” highlighted crude oil’s test of a long-term support level, the market’s landscape has been transformed. That article noted the oil market’s ability to hold that support level would likely play “a significant role in the energy sector’s performance.”
Jumping forward to Wednesday of this week, spot (cash) oil prices hit $80 for the first time since last August, and March WTI crude oil futures (CLH5) closed at a new contract high, having rallied more than 16% since December 10:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
While many analysts had already upped their 2025 price targets for oil amid tighter supply forecasts, recently announced sanctions on Russian oil appeared to give those sentiments an additional boost.1 The current oil move represents the market’s biggest upswing in roughly two years, when spot prices rallied from around $70 in December 2023 to above $86 in April 2024.
Meanwhile, as of Thursday, the energy sector was up around 7.5% for the year, roughly twice as much as the next-strongest sector, industrials. While the year is still (very) young, this was a noteworthy reversal of fortune from 2024, when energy finished the year as the S&P 500’s second-weakest sector. In late 2024, though, Morgan Stanley & Co. strategists highlighted energy’s potential attractiveness in 2025, in part because of the expected trend toward deregulation in the second Trump administration.2
Of course, oil traders and energy investors are likely wondering whether the current move will simply be a temporary rebound or the beginning of a more significant uptrend. A longer-term chart of spot oil prices shows that, while the recent rally is certainly a meaningful bounce off the long-term support level, the market is still trading below the swing highs it made in 2023 and 2024 (arrows):
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
This doesn’t mean the market can’t eclipse those highs, but it is a reminder that oil is still well within the bounds of a long-term consolidation, and that many traders would expect prices to face resistance around the highs of that range.
While “commodity stocks”—companies that produce or deal in basic commodities like crude oil—don’t necessarily move in lockstep with their underlying markets, they also may have trouble bucking major trends, or trading ranges, in those markets. For example, if crude prices turn lower and make another run at their long-term support, energy stocks may find it difficult to maintain their market-leading momentum. Oil is on an upswing, but it has yet to prove the move is different from the intermediate-term swings that unfolded over the past couple of years.
Today’s numbers include (all times ET): housing starts and building permits (8:30 a.m.), industrial production (9:15 a.m.).
Today’s earnings include: Fastenal (FAST), Schlumberger (SLB).
Click here to log on to your account or learn more about E*TRADE's trading platforms, or follow the Company on X (Twitter), @ETRADE, for useful trading and investing insights.
1 Reuters. Oil rallies, settles at multi-month high on US crude draw, Russia sanctions. 1/15/25.
2 MorganStanley.com. Global Outlook: What’s Ahead for Markets in 2025? 11/18/24.