Energy sector surges as crude oil gains 4%
Oil prices climb to $94 amid geopolitical tensions, energy stocks outperform tech amid broader market decline
Energy stocks surged on Thursday as crude oil prices jumped 4%, with the sector providing a rare bright spot in an otherwise downbeat trading session that saw the Nasdaq Composite fall 1%.
Crude oil traded up 4.1% to $94.00 per barrel, with West Texas Intermediate (WTI) reaching around $93.61 amid geopolitical tensions involving Iran and key shipping routes. The Energy Select Sector SPDR Fund (XLE), which tracks major energy companies, has gained 34% year-to-date and 9% over the past month alone, reflecting the sustained rally in oil prices.
Energy shares climbed 1.6% on Thursday, significantly outperforming the broader market. The S&P 500 fell 0.75% to 6,542.14, while the Dow Jones Industrial Average declined 0.43% to 46,228.52. Communication services stocks were among the worst performers, dropping 2.3%.
The rally in energy came as the U.S. trade deficit in goods narrowed to $87.3 billion in February from $88.6 billion in January, with exports gaining 8.7% to $142.0 billion. The shrinking trade gap reflects stronger demand for American goods, though economists note that the export figure specifically refers to real exports of goods adjusted for price changes.
Geopolitical developments contributed to the oil price surge. President Donald Trump suggested that "taking Iran's oil" remained an option, while tensions over the Strait of Hormuz—a critical shipping lane for global oil supplies—added uncertainty to supply prospects. The Strait handles approximately one-fifth of global oil consumption, making any disruption a significant market concern.
The energy sector's strong performance highlights a notable rotation away from technology stocks, which have dominated market gains for much of the past year. As investors seek safe havens amid heightened geopolitical volatility and uncertainty around Federal Reserve policy, traditional defensive sectors like energy have attracted renewed interest.
Global equity markets reflected the cautious mood. European shares were broadly lower, with the eurozone's STOXX 600 falling 0.92%, Germany's DAX declining 1.23%, and France's CAC 40 dropping 0.50%. In Asia, markets closed with losses, including Hong Kong's Hang Seng index down 1.89% and China's Shanghai Composite falling 1.09%.
Analysts caution that the energy sector's rally may face headwinds if economic growth slows or if geopolitical tensions ease. However, with oil prices hovering near multi-month highs and supply constraints persisting in key producing regions, energy companies remain well-positioned for continued strength.