Why are INDO, IMPP, XOM, CVX oil stocks up today?

  • Today, the price of oil jumped again, this time to over $113 a barrel
  • Shares of various oil stocks are under heavy buying pressure following reports that Covid-19 lockdowns may ease in China
  • Until inflation is brought under control, these energy stocks look set to keep running

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Today’s price action in the broader markets was interesting. There is wide divergence across sectors, with energy stocks significantly outperforming their high-growth tech counterparts. This continued rotation from growth to value has greatly benefited investors in oil stocks so far this year.

Indeed, today’s oil stock price action has been downright remarkable. Shares of Indonesia Energy (NYSEMKT:INDO), Imperial Oil (NASDAQ:IMPP), Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CLC) are all up. All four of these oil companies saw their valuations soar, with Indonesia Energy and Imperial Petroleum leading with gains of 30% and 15%, respectively. Both Chevron and Exxon Mobil are up around 3% at the time of writing.

There are a number of reasons for today’s massive rise in these three large-cap stocks. Chief among the catalysts investors are watching is news that Shanghai may soon emerge from its weeks-long Covid-19 lockdown. Optimism around an economic reopening in China boosted global demand expectations. As a result, being the global commodity that it is, crude oil futures came under heavy buying pressure today.

Let’s see why investors view this catalyst as such a big deal.

Oil inventories rise on potential demand catalyst

The potential for Chinese demand to return to the market is a big deal for investors in oil stocks. The price of oil has an inherent impact on the results of producers, such as the aforementioned companies. Therefore, the supply and demand of the oil equation is important for investors to consider when considering the near-term prospects for these companies.

Prolonged shutdowns in China have been a major catalyst for recent oil price declines. Still around multi-year highs, the price of oil is not cheap. However, today’s rise indicates just how important Chinese demand is to the global energy market.

According to recent reports, lockdown restrictions could be eased in the coming weeks, with some measures lifted as early as this week. If the Chinese economy fully reopens, investors have good reason to believe that demand will increase.

Right now, I think investors have no choice but to be bullish on oil stocks. Overall, commodities are expected to remain at elevated levels until the global geopolitical environment changes. With no catalysts for change in sight, investors are seeking refuge in oil stocks. And I don’t blame them.

As of the date of publication, Chris MacDonald had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Chris MacDonald’s love of investing has led him to pursue an MBA in finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative long-term investment outlook.


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Felix J. Dixon