The price of oil—and the Energy sector—have been affected by myriad factors over the past several months, making a firm call in either direction difficult. Although trade uncertainty and concern about slowing global economic growth have held prices down—a slower-growing economy typically demands less oil—sporadic geopolitical events also can cause oil prices to spike. A good example was seen in mid-September, when attacks were launched against Saudi Arabian oil facilities, causing fears of a supply shock. Despite the ups and downs, the price of crude oil remains in the middle of its one-year range.
On the positive side, the U.S. economy has continued to expand. A growing middle class in developing nations has continued to drive world energy demand higher, accounting for 99% of global energy demand growth over the past decade.¹ Also, geopolitical tensions, if raised, could result in higher oil prices.
However, energy supply has increased dramatically with a renewed commitment to exploration and technological improvements. Meanwhile, environmental protection efforts and new technology could negatively affect the growth in demand for energy products—one key example is China, where severe pollution problems could lead to mandates to cut back on the use of traditional sources of energy.
Given the numerous crosswinds described above, we maintain our marketperform rating on the Energy sector.
¹ Source: U.S. Energy Information Agency data.
What do the ratings mean?
The sectors we analyze are from the widely recognized Global Industry Classification Standard (GICS®) groupings. After a review of risks and opportunities, we give each stock sector one of the following ratings:
- Outperform: likely to perform better than the broader stock market*
- Underperform: likely to perform worse than the broader stock market
- Marketperform: likely to track the broader stock market
Want to learn more about a specific sector? Click on a link below for more information or visit Schwab Sector Views to see how they compare. Clients can log in to see our top-rated stocks in the Energy sector.
* As represented by the S&P 500 index
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