What Does the Future Hold for Oil and Gas Stocks?

Crude oil has mostly traded sideways year to date. It’s a similar story for energy equities.

For example, energy producer Chevron (NYSE: CVX) is down 3% YTD while the S&P 500 is up about 18%.

Is the energy trade over? What does the future hold for these stocks? 

Let’s look at recent trends and upcoming seasonality for clues… 

Recent Trends in the Oil Market

At the start of 2024, oil prices hovered around $70 per barrel. By mid-March, prices climbed past $80 and largely remained there until dipping below that level in May. 

Since then, oil has traded within a narrow range near $80 per barrel, even with heightened tensions in the Middle East after the unexpected Hamas attack on Israel in October 2023 and Israel’s subsequent military response in Gaza.

While there are still fears of a broader conflict, they haven't materialized yet. Meanwhile, U.S. oil production continues to be robust, with the country now a net exporter, reducing its vulnerability to oil supply shocks.

We’ve also seen some weaker consumer data which has resurfaced some recession fears among investors. 

What Does Seasonality Say About The Near Future?

Whether you’re a trader or a long term investor, it’s important to understand seasonality in the energy markets. 

For example, we can see below that over the past 5-10 years, oil tends to reach its highest levels for the years in early April and early July, typically topping around July 1st. 

Source: nasdaq.com

These patterns aren’t perfect … but they’re a helpful guide.

Case in point, so far this year WTI peaked in early April (green) and its next local top in early July (yellow):

Chart courtesy TradingView

Return to the seasonality chart above, and you’ll see that after the July peak, oil tends to slump until the end of august, and then rally into September and October. After October and into the end of the year, oil enters its weakest period of seasonality, before bottoming around January 1st. 

What does all this mean? 

For traders, now could be a time to enter or add to oil stocks, and then take profits during September and October. Alternatively, a trader or investor looking to add exposure could wait for the historical seasonal bottom which comes on the first day of the new year.

These are just a few ways to incorporate seasonality. Of course, there are no guarantees the seasonal pattern repeats …  but so far this year it’s been quite accurate. 

What About Longer Term?

Longer term, consensus is still that oil demand grows well into the end of the decade, which bodes well for energy stocks:

• According to the IEA, total oil demand is still forecast to rise by 3.2 million b/d between 2023 and 2030.
• S&P Global Commodity Insights forecasts global oil demand -- including biofuels -- peaking at around 109 million b/d in 2034, with a gradual decline in the following years and only falling below 100 million b/d in 2050.

Additionally, the world’s best investor, Warren Buffett, still holds over 10% of his firm’s equity portfolio in two energy stocks: Occidental Petroleum (NYSE: OXY) and Chevron (NYSE: CVX). Chevron is the better-screening of the two, plus a consensus buy according to top analysts:

Analysts forecast an average gain of 25% with max gains of 42% for CVX one year from now. 

The stock also currently has strong fundamentals, according to our zen analysis.

So while seasonality always brings some volatility to the oil market, it may still be a great trade for years to come for patient investors. 

Want more? Check out WallStreetZen’s Best Oil & Gas Stocks to Buy Now Screener

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