The energy sector was the surprise outperformer of the first quarter this year, with the S&P 500 Energy Sector (XLE) getting a shot in the arm from flaring Middle East tensions, supply chain disruptions, and some nasty weather. More recently, signs of cooling tempers and climbing inventories have prompted some profit-taking, with June-dated oil (CLM24) now cooling its heels back below $80.
However, analysts at Citi are saying that oil prices could stay elevated due to the overall heightened risk backdrop, even without the help of any further geopolitical saber-rattling. “Oil prices may stay higher for longer on geopolitical risk, even without escalation,” said the brokerage firm, and upgraded the energy sector to “overweight.”
