By Avi Salzman
The profit-reporting season for oil-and-gas companies started out in a downbeat mood, but things could be starting to shift.
Results from bellwether companies such as the energy-service provider company Halliburton weren't as strong as Wall Street expected. An earnings preannouncement from Exxon Mobil was also disappointing; the company referred to weak refining margins and low natural-gas prices. Since the day before Halliburton kicked off earnings season last week, the Energy Select Sector SPDR Fund is down about 2%.
But investors seemed more upbeat on Thursday, which may mark a turn for the industry, partly because oil prices have also turned higher after a losing streak that has left prices down about 5% this month. West Texas Intermediate crude, the U.S. benchmark, was up 0.7% to $78.16 per barrel on Thursday.
A second positive factor may have been second-quarter results from Valero, a large refiner that posted better-than-expected earnings. The company's stock started the day trading lower, but turned higher around when the company's earnings call began at 10 a.m. By midday, the stock was up 3.8%.
On the call, executives said that they are starting to see fuel sales rise, a positive sign for refining margins. Sales of diesel, which powers trucks, are up 10% in the past four weeks, the company said.
"It does feel as if the market has found a bit of a bottom," said Chief Operating Officer Gary Simmons. "If that's correct, and we found the bottom, it is what historically has been a mid-cycle type refining margin environment. That's actually pretty bullish for refining going forward."
Roth MKM analyst Leo Mariani thinks the weakness in energy has been driven by "a technically driven sell-off by momentum traders as well as commodity trading advisors."
"These momentum sell-offs seem to happen several times a year and are largely unrelated to supply and demand fundamentals," Mariani added.
He recommends that investors put money into names that can benefit from higher oil prices, can generate strong cash flow, and can modestly increase production over time. Among those picks are Civitas Resources, ConocoPhillips, Matador Resources, Murphy Oil, Permian Resources, and Talos Energy.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 25, 2024 13:58 ET (17:58 GMT)
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