The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is up nearly 7% over the past month. While XLE is still saddled with a year-to-date loss, some traders believe the recent rally in the benchmark energy ETF is a sign of more bullish things to come.
Investors shouldn’t forget about the demand side either, especially with a growing global economy. Citigroup projects a greater likelihood of persistent shortage of oil than a big jump in supply over the coming quarters.
“Energy stocks have soared this month, and Todd Gordon, a technician and founder of TradingAnalysis.com, says an even bigger rally is in store for the sector,” reports CNBC. “The XLE energy-tracking ETF is up almost 7 percent in December, with energy stocks also getting a boost Tuesday as oil rallied to hit $60. From a technical standpoint, Gordon says that XLE is looking like a great buy for investors.”
Market observers believe the sector can continue its recent rebound. Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. The challenge for energy equities is that some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.