To The Moon

$Energy Select Sector SPDR Fund(XLE)$ declined 6.34% last week, the largest drop since 2022 December.

Energy stocks $Exxon Mobil(XOM)$ declined 6.62$ ,$CVS Health(CVS)$ lost 5.3% ,$ConocoPhillips(COP)$ dropped 9.51% ,$Occidental(OXY)$ lost 7.47%,$Marathon(MPC)$ dropped 3.38% ,$Schlumberger(SLB)$ declined 5.35%, $EOG Resources(EOG)$ lost 11.72% seperatly. 

Shares of ExxonMobil (XOM), for example, which saw record profits last year, hit a 52-week high in early February. Still, the oil and gas giant was recently downgraded to Hold from Buy at CFRA research given its run-up over the last year.

Energy stocks have been largely sitting out the recent broader market rally, despite a stellar 2022 performance. Energy stocks were hot in 2022. Many believe that they will continue to be among leaders in 2023. 

Why it declined so much last week?

1. The drop comes as traders worry that future US interest rate hikes could weigh on demand and amid signs of ample crude and fuel supply. On last Thursday, two Fed officials warned additional hikes in borrowing costs are essential to curb inflation. The sentiments lifted the US dollar, making oil more expensive for holders of other currencies.

2. Various signs of ample supply also weighed on the market. The latest snapshot of US supplies, released on Wednesday, showed crude inventories in the week to Feb. 10 rose by 16.3 million barrels to 471.4m barrels, their highest level since June 2021.

Russian oil producers expect to maintain current volumes of crude oil exports, despite the government’s plan to cut oil output in March.

Any Good News?

It's expected oil prices will rise from here, as seasonal demand increases in the spring, giving a boost to energy stocks. The impact of China's full reopening post Covid lockdowns is also expected to fuel oil demand.

However, according to Rebecca Babin, senior energy trader at CIBC Private Wealth,

China is the main thesis for bullish views on crude oil prices, though the economy's reopening is not linear and its impact on the oil market may not be as fast as analyst had expected.

For now, energy bulls still lean towards cyclical equities over high tech growth names, even if that isn't part of the recent 2023 trend. So far in this year, The S&P 500’s Energy Select Sector (XLE) is up 1% compared to the benchmark index’s gain of more than 7%—and the Nasdaq’s 14% rise over the same period.

How deep will Energy stocks pullback?

According to market investing com. Technically，It held up very well, right at the 2022 highs, but it is giving up. Unfortunately, there is not a lot of support below $82, and once that breaks next stop should be around $76 at the trend line.

The odds favor a move lower, not necessarily a crash but just a pullback that might turn this chart too tired to break out to new highs in 2023.

What your understanding of Oil and Oil stocks, do you think its just a common pullback and Super cycle continues? Or you believe oil stocks have moved out of favor in 2023 from investors?