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Energy Stocks Soar in Monday's Trading Session: Here's Why

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Crude prices jumped on Monday as biotech company Moderna (MRNA - Free Report) reported that its coronavirus vaccine was 94.5% effective in trials. The oil market's gains yesterday added to last week's rally, which saw both the WTI and Brent — the global benchmark — surge around 8%.

Moderna’s COVID-19 Vaccine is Highly Effective

U.S. oil gained $1.21, or 3.02%, to end the day at $41.34 per barrel. Meanwhile, Brent crude futures settled at $43.80 per barrel, up $1.02, or 2.4% from their last close. The single-most important factor contributing to the uptick was better-than-expected interim data from a large clinical trial of Moderna’s experimental coronavirus vaccine — mRNA-1273. The Cambridge, MA-based firm said that analysis indicated nearly 95% efficacy in preventing infections without any serious safety issue, based on a provisional data analysis.

Predictably, stock markets rocketed on the optimism of a potential treatment for the pandemic. The results, which brightens chances of the drug’s emergency approval before the year-end, boosted stock markets worldwide with the Dow and the S&P hitting record highs.

Moderna’s breakthrough announcement comes exactly a week after drugmakers Pfizer (PFE - Free Report) and BioNTech (BNTX - Free Report) announced successful data from their COVID-19 vaccine study. Pharma giant Pfizer and its Germany-based partner BioNTech claimed that their COVID-19 candidate could prevent more than 90% of infections with no significant safety concerns.

Energy Stocks Soar

The energy sector ETF is down 40% year to date and remains one of the three S&P 500 sectors in the red for the year. In fact, energy has been the worst-performing component of the benchmark index so far this year as it continues to struggle with depressed demand associated with COVID-19-related containment measures. But encouraging news on the vaccine front could well be a precursor to a spike in oil consumption by aiding economic recovery

For oil in particular, the twin developments hold out hope toward protection against the deadly pandemic that has crushed the commodity’s demand and caused a bloodbath for the energy-related stocks. A potential treatment is expected to revive economic and transport activity, leading to stronger crude demand.

Oil bulls also drew heart from speculations suggesting that the OPEC+ group of producers will keep holding back supply by 7.7 million barrels per day beyond the December-end timeline, instead of relaxing the cuts to 5.7 million barrels per day from January.

The commodity was further buoyed by a report which showed that China-based refineries processed record amount of crude in October — suggesting an economic revival in the world’s second biggest oil consuming country.  

The string of catalysts pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up more than 6.6% on Monday to be at the top of the S&P sector standings. In fact, some of the top gainers of the S&P 500 included energy-related names like TechnipFMC (FTI - Free Report) , Schlumberger (SLB - Free Report) , National Oilwell Varco (NOV - Free Report) and Valero Energy (VLO - Free Report) . Meanwhile, the only energy representative in the 30-stock Dow Jones industrial average, Chevron (CVX - Free Report) — carrying a Zacks Rank of #5 (Strong Sell) — rose 7.1%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conclusion

Progress of the vaccine candidates notwithstanding, the road to recovery remains long and uncertain amid concerns of soaring new coronavirus infections in many countries, and the re-imposition of lockdowns severely hampering the fragile oil demand recovery. This has been validated by the recent monthly reports of energy watchdogs, IEA and OPEC wherein they cut their oil usage forecasts.

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