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Energy Stocks Rip Higher as Oil Hits Highest Since Mid-June

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Oil prices rose about 2% on Tuesday, extending gains for the third session, underpinned by a slew of positive news. U.S. West Texas Intermediate (WTI) crude advanced $2.19, or 2%, to $111.76 per barrel — its highest since Jun 16.

Reasons for Oil’s Surge

Oil’s uptick was primarily driven by the market’s precariously low level of spare capacity. Contrary to popular perception, it appears that two major producers — Saudi Arabia and the UAE — will be unable to boost output sufficiently enough to help fill Russia's supply gap. While UAE is already churning out at full throttle, Saudi Arabia could add just 150,000 barrels daily. In essence, this leaves the market quite vulnerable to future supply outages.

Further supporting crude prices is China’s emergence from its strict COVID-19 restrictions. As the world’s biggest oil importer eases its zero-COVID lockdowns that suppressed economic activity, energy consumption is expected to rise, which is a positive for crude demand and prices.

Then again, a bunch of better-than-expected economic data over the past few days bolstered prices. Upbeat durable goods orders has painted a positive demand picture, while an increase in pending home sales has signaled strength in the housing market.

Production disruptions in Libya and Ecuador, plus speculation about a G-7 decision to cap Russian crude prices to prevent Moscow from benefiting from its energy trade, also sent oil higher.

Energy Stocks Take Off

Yesterday’s buying pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up 2.7% to be the leader of the S&P sector standings, while all other sectors lost value. Consequently, the three biggest winners of the S&P 500 on Tuesday were all energy-related names — Hess Corporation (HES - Free Report) , Occidental Petroleum (OXY - Free Report) and Marathon Oil (MRO - Free Report) .

Hess Corporation: HES was the top-performing S&P 500 stock yesterday, with a gain of 5.57%. HES, carrying a Zacks Rank of #3 (Hold), has a projected earnings growth rate of 309.1% for this year.

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

The Zacks Consensus Estimate for Hess’ 2022 earnings has been revised 41.8% upward over the past 90 days. HES beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, the average being 12.7%.

Occidental Petroleum: This stock was the second-best performer on the S&P 500 Index, with shares appreciating 4.77% on Tuesday. Occidental’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry's growth rate of 30.4%.

OXY has a projected earnings growth rate of 306.3% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 11.5% upward over the past 60 days.

Marathon Oil: Marathon stock jumped 4.37% on Jun 28. MRO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 23%.

Marathon is valued at around $16.4 billion. MRO has a projected earnings growth rate of 228.7% for this year.