Taking a quick glance at the performance of the energy sector since the start of the year and it would be hard to believe anyone claiming that energy stocks are on fire. The energy sector is down about 7.5% year to date, and yet, since bottoming on Aug. 21, energy stocks have climbed more than 13%. With Exxon Mobil Corp. (XOM) and Chevron Corporation (CVX) up about 10% since mid-August, Haliburton Co. (HAL) up more than 15%, and ConocoPhillips (COP) up over 25%, it looks as though the energy sector is beginning to thaw, according to Barron’s.

Energy Winners

Other energy out-performers since the summer have been Devon Energy Corp. (DVN) with a more than 33% rise since mid-August, and Marathon Oil Corp. (MRO), which is up more than 45%. Devon is trading at a forward price to earnings ratio (P/E Ratio) of 18.45 while Marathon’s is trading at -82.21.

With OPEC recently announcing that shale oil production will grow much faster than previously expected over the next four years, U.S. shale producers are likely to see gains. Along with Devon and Marathon, Cimarex Energy Co. (XEC), up more than 27% since the summer, and Continental Resources Inc. (CLR), up almost 44%, should be some of the major beneficiaries of increased shale production. (To read more, see: The World’s Top Oil Producers of 2017.)

Macro Forces

Despite the expected growth in production forecasted by OPEC, at least right now most oil companies have been focused on saving money rather than trying to expand production, even as oil prices have been climbing higher. Prices reached a fresh two-year high with West Texas Intermediate (WTI​) hitting $57.35 per barrel last week, and Brent crude reaching as high as $64.27.

The higher oil prices are being driven by a combination of factors including falling oil inventories, expectations of OPEC extending its production cuts, and increased geopolitical risks, according to the Wall Street Journal. (To read more, see: Why Oil Prices Could Double to $90.)

The U.S. Energy Information Administration recently reported that crude stockpiles had fallen 2.4 million barrels during the week that ended on Oct. 27. “U.S. inventories,” according to Dominick Chirichella at the Energy Management Institute, “are in a destocking mode.”

With the next OPEC meeting concerning whether to extend production cuts set to take place on Nov. 30, Tariq Zahir with Tyche Capital Advisors believes that oil prices are already reflecting expectations of an extension.

Increasing conflict in northern Iraq has already disrupted crude oil production, and financial instability in Venezuela that has led to speculations of a sovereign default could bring even more production offline, reducing total global supply.

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