Chris Wood expects a strong rebound in demand for crude oil; the energy index outperforms the FAANG and the S&P 500

Since the start of the year, the S&P Energy index has risen 46.9%, outperforming the S&P 500 which managed to jump 13%.

Crude oil prices have now passed the $ 74 per barrel mark and continue to rise as the recovery in global demand improves. Building on this improved demand, Chris Wood, Global Head (Equity Strategy), Jefferies, recommends that investors go long in energy and short in thematic technologies with no profit. The market strategist has been advocating cyclical trade for several months, oil being the most favorable. Since the start of the year, the S&P Energy index has risen 46.9%, outperforming the S&P 500 which managed to jump 13%. Oil prices have risen slightly as the outlook for crude oil demand improves with the deployment of vaccines around the world.

The S&P 500 Energy index outperforms

Highlighting trade, Chris Wood in his weekly GREED & Fear newsletter pointed out that Elon Musk’s Tesla has been outperforming the S&P 500 Energy Index since its listing in 2010. However, he added that since February 2 this year, the momentum has changed and Tesla has since underperformed by 50%. Chris Wood also pointed out that an index of six well-known US tech companies, namely Tesla, Snap, Uber, Spotify, Twitter and Slack, had outperformed the energy index by 450% from early 2020 until a peak. on February 2, and has since underperformed by 40%.

Chris Wood said the S&P 500 Energy Index has not only outperformed the S&P 500, but has outperformed FAANG stocks by 71% since November 2020. The SPDR S&P Oil & Gas Exploration & Production (XOP) ETF only rose only 20% since June 2020, even though this ETF is up 232% from the 2020 low reached last March, ”he said.

Crude oil demand, prices rebound

“The positive view of greed and fear over the price of oil, which, as previously stated, is likely to act as a catalyst for an escalation of fear of inflation in the months to come, is based both on booming demand and, more importantly, on a growing shortage of supply, “said Chris Wood. The market strategist further said demand for crude oil is expected to rebound to prior levels. the 100 million barrels per day pandemic Key markets such as China and the United States saw demand increase as the economy began to reopen.

While demand has improved, the lack of supply is also significant, according to Chris Wood. Investments in exploration outside of OPEC have been declining since 2014. Financial institutions are wary of funding exploration projects, another reason compounding the lack of supply. Wood added that crude oil prices would skyrocket, but the Russians and Saudis will be wary of raising oil too high above $ 100 / bbl or more, as it could further encourage alternative production.

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Felix J. Dixon