Wolfe Research says energy stocks, after advancing about 30% year-to-date through mid-March, may be entering a consolidation phase following a significant rally. The research note frames the sector as having acted as a shelter during recent market volatility, with investor focus centered on movements in oil prices.
In its commodities analysis published Saturday, Wolfe Research observed that, despite recent whipsaw trading in crude, market conditions appear to set the stage for crude to move back above $100 per barrel. At the same time, the firm conveyed a view that prices have likely already reached their peak.
The note highlights that steep backwardation persists across crude futures curves. Current backwardation levels, Wolfe Research says, match extremes that were present at the market peak in 2022, underscoring the tightness signaled by near-term futures trading at a premium to later-dated contracts.
On the technical side, the research team identified divergences on the Energy Select Sector SPDR Fund chart. Specifically, the Relative Strength Index and momentum metrics have fallen over the past week even as prices remain elevated. Wolfe Research interprets those divergences as consistent with a period of price digestion for the sector.
Wolfe Research named two individual equities that are exhibiting technical strain. Kinder Morgan (NYSE:KMI) experienced a stalled rally that reversed during the last week, with momentum indicators retreating while the 50-day moving average sits near $31. The firm expects the reversal that began last week to continue into a further pullback.
Similarly, Antero Midstream (NYSE:AM) persists near multi-week highs after a parabolic run, but Wolfe Research points to rolling over in both MACD and RSI readings as a signal that prices may head lower from current levels.
The firms combined assessment links crude market structure and technical divergences on sector and stock charts as the basis for tempering near-term upside, while still noting the proximate potential for crude to revisit the $100-per-barrel area even as the firm judges that a top in prices may already be in place.
Context and implications
- The commentary ties commodity market dynamics to observable technical wear in energy equities, suggesting shorter-term caution for investors holding recent winners.
- Observed technical weakness is concentrated in both pipeline and midstream names identified by the firm, indicating potential pressure on that segment of the energy complex.