Surging oil prices and falling Treasury yields helped the S&P 500 energy sector to kick off the month of October, and the fourth quarter, with its biggest daily gain in nearly two years.
The Energy Select Sector SPDR Fund XLE, +5.65%, an exchange-traded fund that aims to mirror the performance of the S&P 500 energy sector, rose 5.7% to $76.09, its biggest daily percentage-point gain since Nov. 23, 2020, when it rose 7.1%, according to Dow Jones Market Data. The move made energy the best-performing sector on the S&P 500 Monday.
Commodity analysts said energy stocks benefited from higher oil prices spurred by reports over the weekend that the Organization of Petroleum Exporting Countries and its allies could cut their daily production quota by more than 1 million barrels a day.
West Texas Intermediate crude CLX22, 0.36% for November delivery rose $4.14, or 5.2%, on Monday to settle at $83.63 a barrel on the New York Mercantile Exchange, the highest finish for a front-month contract since Sept. 20.
The reason news of the potential production cuts had such a large impact on the price of crude oil is because investors had been expecting a smaller cut to the OPEC+ quota, said Bart Melek, head of commodity strategy at TD Securities.
If such a large cut comes to pass, it could cause global oil inventories to shrink just as demand picks up as China’s economy exits COVID-19-inspired lockdowns that have impacted oil demand.
“We’re in an environment where [OPEC+] is the swing producer. They’re the only people with spare capacity,” Melek said in a phone interview with MarketWatch on Monday.
There are 21 companies in the S&P 500 energy sector, all of which are involved in the oil and natural gas industry. Several of these companies ranked among the best performers on the S&P 500 Monday. Almost all of them finished the session with a gain of 3% or more.
The three best performers were Marathon Oil Corporation MRO, +10.58%, Devon Energy Corporation DVN, +8.65% and APA Corp. APA, +9.10%, up 10.6%, 9.1% and 8.7% on the day.
To be sure, OPEC+ wasn’t the only factor helping to lift the price of stocks, including energy stocks, on Monday. Expectations that the Federal Reserve might “pivot” toward less aggressive tightening of monetary policy helped drive bond yields sharply lower, said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note to clients.
Market strategists widely credited lower bond yields with helping to boost stocks.
The S&P 500 SPX, +2.59% rose 2.6% to 3,678.43, the Nasdaq Composite COMP, +5.17% climbed 2.3% to 10,815.43 and the Dow Jones Industrial Average DJIA, +2.66% gained 2.7% to 29,490.89.