Wall Street had a slightly downbeat close to what was otherwise a strong week. Investors were happy to see sentiment recover from a tough September, but after several days of strong gains, Friday brought a slight decline heading into the holiday weekend. The Dow Jones Industrial Average (^DJI 0.56%), S&P 500 (^GSPC -0.88%), and Nasdaq Composite (^IXIC -2.05%) were all lower, with the Nasdaq underperforming the others.


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Data source: Yahoo! Finance.

Even with major indexes slightly lower, the energy sector continued to outperform on Friday. That makes sense given the dynamics in the oil and gas market right now, but the big question many investors are wondering about is whether the gains could last not only for the rest of this year but also into next year as well.

Person wearing hard hat working on oil well equipment.

Image source: Getty Images.

More gains in energy

Fundamentally, just about every major oil and gas stock takes its cue from the commodity markets. On Friday, oil prices gained ground once again, with a 1.5% gain taking the price close to $80 per barrel for West Texas Intermediate. Global markets have already bid Brent crude up above the $80 per barrel mark. On the natural gas side, futures prices eased slightly lower today, but prices remain at considerably elevated levels compared to where they were just a few weeks ago.

The ramifications of $80 per barrel oil are highly positive for energy stocks. Even giants ExxonMobil (XOM 1.15%) and Chevron (CVX 1.54%) saw sizable gains of 2% to 3% on Friday, as investors got more excited about the prospects for higher profit margins and better support for their lucrative dividend payments. Smaller companies saw even bigger gains, such as Hess (HES 1.69%) and APA (APA 0.56%) with their nearly 7% rise on Friday.

Further down the supply chain, oil services companies are also benefiting from the more favorable environment. Schlumberger (SLB -2.14%), Halliburton (HAL 1.11%), and Baker Hughes (BKR 1.24%) were all up around 2% on Friday, as investors expect higher prices to spur new capital investment that in turn should boost demand for the products and services these companies provide.

Investors also saw midstream energy companies post gains on the expectation that greater production will lead to more transmission of oil and natural gas through pipelines. Kinder Morgan (KMI 3.46%) climbed more than 3%, while Enbridge (ENB 2.83%) and Enterprise Products Partners (EPD 1.41%) were up between 1% and 2%.

What's next?

It's hard to believe that it was just last year that oil prices were briefly negative on futures markets. Yet as many expected at the time, dramatically reduced energy demand was only temporary, and consumers and industrial users bounced back with a vengeance once the realities of the pandemic gave them the opportunity to do so.

As a result, more experts are starting to predict even further gains for the energy market. Even predictions of $100 oil have started to emerge once again, and that could spell even greater gains for all the stocks in the sector. Moreover, because of consolidation in the industry, the total market capitalization of energy stocks is relatively small compared to other sectors of the market, and if capital starts to flood into the area, then it could lead to an even bigger boom.

In the long run, of course, there are challenges for fossil-fuel based companies, and oil prices tend to run in cycles. Yet when you look at the rest of 2021 and into 2022, there's ample opportunity for momentum in the energy market to push stocks higher.