Oil Price Surge Fuels Rally in Smaller Energy Stocks, While Majors Lag Behind
The oil market is witnessing a resurgence after months of consolidation, with prices breaking through a key resistance level and surging upwards. This upward momentum has ignited a rally in several oil and gas stocks, propelling some to new highs and others to six-month peaks. However, this renewed vigor in the energy sector hasn’t uniformly lifted all boats. Noticeably absent from the celebration are industry giants like Chevron and Exxon Mobil, which continue to trade significantly below their 2024 highs. This divergence in performance underscores the complex dynamics at play in the energy market, where smaller, more agile companies are often quicker to capitalize on shifting trends.
This recent surge in oil prices, breaking through a downtrend line established between July and October, has captured the attention of Wall Street’s algorithmic trading systems. The move signifies a decisive shift in market sentiment, with investors seemingly more optimistic about the outlook for oil demand and pricing. The renewed interest is reflected in the performance of the United States Oil Fund (USO), an exchange-traded fund designed to track the price of West Texas Intermediate crude oil. USO has mirrored the upward trajectory of oil prices, breaking above both its 50-day and 200-day moving averages, signaling a potential sustained uptrend. This renewed optimism in the oil market provides a supportive backdrop for the performance of smaller energy companies, offering the potential for further gains.
While the energy sector’s behemoths remain subdued, several smaller players are seizing the opportunity presented by rising oil prices. These companies, less burdened by legacy infrastructure and more adaptable to changing market conditions, are demonstrating greater agility in capitalizing on the positive momentum. Among the standouts are Dorchester Minerals (DMLP), Golar LNG (GLNG), Gulfport Energy (GPOR), and ProPetro Holdings (PUMP), each exhibiting robust price action and technical indicators suggesting further upside potential. These companies represent a cross-section of the energy sector, encompassing exploration and production, midstream services, and oilfield equipment. Their performance highlights the breadth of the rally within the energy sector and the potential for investors to find opportunities beyond the traditional major players.
Dorchester Minerals, an oil and gas exploration and production company, has broken through its November high on impressive volume, particularly considering the typically subdued trading activity during the holiday week. This strong performance is further substantiated by the positive technical signal of the 50-day moving average crossing above the 200-day moving average in October, a classic indicator of gathering momentum. With attractive valuations, including a price-to-earnings ratio of 12 and a debt-to-equity ratio of zero, Dorchester Minerals presents a compelling investment case within the resurgent energy sector. The company’s strong financial position and positive technical indicators suggest potential for continued growth.
Golar LNG, a Bermuda-based midstream company, has also exhibited impressive price action, achieving a new high for December on robust trading volume. The stock’s continued trading well above both its 50-day and 200-day moving averages reinforces the positive technical picture. While trading at a higher price-to-earnings ratio of 40, Golar LNG offers investors a dividend yield of 2.32%, adding an income component to the potential for capital appreciation. This combination of growth potential and income generation makes Golar LNG an attractive option for investors seeking exposure to the energy sector.
Gulfport Energy, a Russell 2000 component, has also witnessed its stock price ascend to a new high, surpassing its November peak. The positive crossover of the 50-day moving average above the 200-day moving average back in November provided an early indication of the stock’s potential for upward movement. With a price-to-earnings ratio of 16 and trading at a relatively modest 1.6 times book value, Gulfport Energy offers investors a balanced value proposition within the energy space. The company’s inclusion in the Russell 2000 index also provides increased visibility and potential for broader market participation.
ProPetro Holdings, another Russell 2000 company providing oilfield services, has surged to a new high, surpassing its May peak. The impending crossover of the 50-day moving average above the 200-day moving average suggests further upward momentum may be in store. The recent upgrade by JP Morgan from "underweight" to "neutral" with a $10 price target further bolsters the positive sentiment surrounding the stock. ProPetro Holdings, with its smaller market capitalization and focus on oilfield services, offers investors targeted exposure to the increasing activity within the oil and gas industry.
These four companies, while smaller than the energy sector’s giants, are demonstrating the potential for significant gains in a rising oil price environment. Their performance underscores the importance of looking beyond the traditional large-cap names to uncover opportunities within the dynamic energy landscape. As oil prices continue their upward trajectory, these smaller players, with their agility and growth potential, may offer investors compelling opportunities for participation in the energy sector’s resurgence.
