The energy sector has been the bottom-feeder of the market over the past year, losing 17.5%. The huge discount can be attributed to record-low natural gas prices as well as shrinking demand for coal. While the consensus is that natural gas prices will trend higher over the long term because of increased demand, coal is not as certain. In fact, the percentage of electricity generated from coal is expected to fall back to levels not seen since the 1940s. And with oil prices decreasing over the past few months because of eurozone uncertainties and slowing growth in China, the sector could continue its slide in the near term.
July futures for WTI crude were crushed yesterday by the weight of the European financial muddle, dropping 2.62%. Today, however, the futures rose on expectations that the Federal Reserve will eventually roll out QE3 this year.
Gain/ Loss %
|Crude Oil Volatility Index
|Henry Hub Natural Gas
Source: CME Group.
All applying a slight upward pressure on crude prices is OPEC's expected strategy of tightening oil production in an attempt to increase oil prices. With the cartel meeting on Thursday, markets might have to react to slowing production threats soon.
Today's top performers
After losing 65% of its value so far this year, First Solar (Nasdaq: FSLR ) jumped more than 20% on unexpected European demand for its solar modules. The demand is causing the company to keep its Frankfurt, Germany, plant open, but the rally could be short-lived, as the industry as a whole remains extremely depressed.
In the oil and gas exploration sphere, the small player Halcon Resources (NYSE: HK ) continued its surge today. It moved up 2.73%, closing in on making a 20% increase so far this month. The company recently bought oil and gas assets in East Texas that spread across 16,000 acres, with expectations of increasing oil production by 2,000 barrels per day.
The midstream sector posted substantial gains today, with investors moving into less volatile transportation and refining securities. Now with United States refiners increasing capacity after scheduled maintenance sessions, companies such as Valero (NYSE: VLO ) , up 2%, and Marathon Petroleum (NYSE: MPC ) , up 3.14%, are ready to take advantage of discounted crude prices.
Tesoro (NYSE: TSO ) finished the day up more 4% as it opened its California 97,000-barrel-per-day refinery in California. This opening is good news for Tesoro as well as consumers in San Francisco and Los Angeles, as the increased production should put slight downward pressure on gasoline prices.
With increasing natural gas production and limited LNG export facilities, gas prices are expected to remain depressed until more infrastructure is built out. However, crude prices will remain volatile until eurozone economic troubles are alleviated. With increased instability expected in the market, now is a great time to check out The Motley Fool's special report describing 3 Stocks That Will Help You Retire Rich. This free report will list three remarkable companies as well as offer great advice on how to invest to secure a comfortable retirement -- get your free report now.