Energy tops S&P sectors as supply threats push crude oil to five-month high

The energy sector (NYSEARCA:XLE) easily outperformed other areas Tuesday, +1.4%, as WTI crude oil futures climbed to a five-month high in the wake of escalating geopolitical tensions in the Middle East.

Iran has vowed revenge on Israel for an airstrike in Syria that killed two top generals and five military advisors, and a Ukraine drone struck one of Russia’s biggest oil refineries.

“It’s headlines, not fundamentals” that lifted WTI, Mizuho’s Robert Yawger says, adding the main impact on energy from the conflict in the Middle East has been to raise the cost of transport because of Houthi attacks on shipping in the Red Sea, but the strike in Syria “just ticks that much closer to dragging Iranian production into the conflict.”

“Despite a flurry of diplomatic activity meant to turn down the heat on the situation, there is definitely a chance the Iranians response will not be as measured this time,” Yawger says.

Also, “the likelihood that continued restricted Russian product exports could further tighten US petroleum supplies has suddenly forced re-calculation of U.S. [oil] balances across the rest of this month and possibly beyond,” said Jim Ritterbusch, president of Ritterbusch and Associates.

Front-month Nymex crude (CL1:COM) for May delivery closed +1.7% to $85.15/bbl, and front-month June Brent crude (CO1:COM) also finished +1.7% to $88.92, the highest settlement value for both benchmarks since October 27.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (XLE), (XOP), (VDE), (OIH), (XES), (IEZ), (CRAK)

Oil refiners were the day’s three biggest gainers on the S&P 500: Phillips 66 (PSX) +3.7%, Marathon Petroleum (MPC) +3.4%, Valero Energy (VLO) +2.6%, with all three touching all-time record intraday highs of $169.70, $211.54 and $177.32, respectively.

Also ranking among the day’s top dozen on the S&P 500 leaderboard: Pioneer Natural Resources (PSX) +2.1%, LyondellBasell (LYB) +2.1%, Exxon Mobil (XOM) +1.9%, EOG Resources (EOG) +1.9%, ConocoPhillips (COP) +1.5%.

OPEC is expected to hold an online meeting Wednesday of its Joint Ministerial Monitoring Committee, which likely will maintain support for current policy which includes a continuation of 2.2M bbl/day in production cuts by the cartel and its allies in Q2.