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Why Oil Stocks Jumped by Double Digits on Thursday

By Travis Hoium – Updated Oct 8, 2020 at 6:22PM

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Could the vice presidential debate have helped the oil sector today?

What happened 

Shares of oil-related stocks jumped on Thursday as some rays of hope for stimulus, political stability, and potentially more oil production gave investors reason to get bullish again. Shares of NexTier Oilfield Solutions (NEX 0.70%) jumped as much as 18.2%, EnLink Midstream (ENLC 0.95%) rose up to 14.3%, Ovintiv (OVV 1.80%) was up as much as 11.7%, and Transocean (RIG 2.95%) jumped 10.8%. Shares of the companies were up 15.5%, 13.9%, 10.8%, and 10.7%, respectively, at the close. 

It's also worth noting that oil and natural gas prices were up significantly today. WTI crude ended the day up 3.4% to $41.29 per barrel, Brent crude was up 3.4% to $43.43, and natural gas rose 1.2% to $2.64 per million BTU. It's no surprise that oil stocks are going to rise when commodities are up that much. 

Oil drilling rig at sunset.

Image source: Getty Images.

So what

The reason energy commodities were up is what investors should really be looking at. Market sentiments have been back and forth all week, but today there was optimism that another stimulus package is around the corner for businesses and consumers. 

Maybe more notable is that in the vice presidential debate last night, Kamala Harris said that a Joe Biden administration is not going to ban fracking. With companies like Ovintiv and NexTier directly affected by fracking and EnLink Midstream a beneficiary of higher U.S. production, these companies have a lot riding on fracking continuing across the country. 

The final bullish signal for energy investors is that it appears less likely there will be a contested election. Investors had been worried that a contested election could throw the country into turmoil, and taking away that risk would be positive for the economy. It doesn't hurt that Democrats have been pushing for a large stimulus bill and they're projected to do well in the election, so some of those stimulus funds would likely flow to energy companies if consumption goes up because the economy is recovering. 

Now what

While it's exciting to get excited about one day, some context is really needed here. All four of the companies mentioned here are down huge over the last year, and it's because oil prices and consumption are down over that time. 

NEX Chart

NEX data by YCharts.

While speculation about a stimulus package or an economic recovery may be running high today, the industry is far from a healthy place. All four of these companies are losing money right now, and I don't see a quick recovery for any of them in this economic and health environment. 

Investors and traders will often speculate on what companies to bet on if a stimulus bill passes or when political winds change, but long-term investors should be looking at the financial health of the companies and industries we're investing in. For NexTier, EnLink, Ovintiv, and Transocean, there may be speculation that a recovery is coming today, but until that speculation turns into a fundamental improvement on their income statements, these are stocks I'll be staying out of. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Transocean Stock Quote
Transocean
RIG
$4.19 (2.95%) $0.12
Ovintiv Inc. Stock Quote
Ovintiv Inc.
OVV
$55.49 (1.80%) $0.98
EnLink Midstream Stock Quote
EnLink Midstream
ENLC
$12.74 (0.95%) $0.12
NexTier Oilfield Solutions Inc. Stock Quote
NexTier Oilfield Solutions Inc.
NEX
$10.00 (0.70%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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