By Lewis Krauskopf and Susan Mathew
(Reuters) - Shares of U.S. energy companies surged on Monday as a jump in oil prices in the wake of attacks on Saudi Arabia's oil facilities gave new juice to a sector that has been a chronic underperformer.
Shares of Apache Corp (N:APA) jumped 16.9% and Marathon Oil Corp (N:MRO) gained 11.6%, while major energy conglomerates, including Exxon Mobil Corp (N:XOM) and Chevron Corp (N:CVX), rose 1.5% and 2.2%, respectively. Some smaller stocks registered huge gains: Whiting Petroleum Corp (N:WLL) jumped 49%, Denbury Resources Inc (N:DNR) gained 28% and Oasis Petroleum Inc (N:OAS) climbed 29%.
The S&P 500 energy sector index (SPNY) rose 3.3%, while the Energy Select Sector SPDR ETF (N:XLE) rose 3.4%.
Benchmark Brent (LCOc1) settled up about 15% after rising about 20%, following drone attacks that sliced Saudi Arabia's production in half and threatened to hamper shipments from the world's largest crude exporter.
Energy companies' bond prices also rallied, with particularly notable gains in high-yield debt. Chesapeake Energy's 8% June 2027 bond was up 7.25%, according to MarketAxess, and Whiting Petroleum’s 6.625% January 2026 bond was up 6.5%. Seven of the top 10 most-traded bonds on the U.S. corporate market on Monday were energy company issues, as were seven of the top 10 most-traded high-yield bonds.
Energy has been one of the worst-performing equity sectors this year and has significantly lagged during a U.S. equities bull market that has lasted more than a decade.
"Obviously we're going to get a big boost today," said Randy Frederick, vice president of trading and derivatives for Charles Schwab (NYSE:SCHW) in Austin, Texas. "But it's very unclear whether or not this is going to have any long-term effect."
(Graphic - Energy sector lags in bull market: https://fingfx.thomsonreuters.com/gfx/mkt/12/6164/6095/Pasted%20Image.jpg)
Energy's weight in the S&P 500 has fallen dramatically, recently dropping below 5% of the benchmark index, down from over 15% in mid-2008.
Energy shares have failed to keep pace this year with the rise in oil prices, despite their traditional tendency to move in the same direction.
"Energy stocks, in theory, should benefit from higher prices, but the relative performance of the hydrocarbon sector has not been as tightly correlated with crude as seen in the past, possibly due to continued poor returns on equity," Citigroup (NYSE:C) equity strategist Tobias Levkovich said in a note.
(Graphic - Energy shares lag oil price gains: https://fingfx.thomsonreuters.com/gfx/editorcharts/USA-STOCKS/0H001QX778FP/eikon.png)
Noting that the energy sector is very "under-owned," Matt Maley, chief market strategist for Miller Tabak, said in a note that "All of these institutional investors will have no choice but to jump on the bandwagon if this under-owned group (or any group) starts to fly higher in the second half of the year."
But rising oil prices might not be enough to propel energy shares, said Christian Ledoux, director, equity investments at CAPTRUST in San Antonio. He said that "the things that have been holding energy shares back aren’t changing," including lack of drilling productivity and capital discipline.
"If oil were to race to $100, all those problems get swept under the rug and we don’t have any capital problems," Ledoux said. "But unless it goes over $70, I don’t see that happening."
U.S. crude (CLc1) settled at nearly $63 a barrel, up over $8 on the day, while Brent settled at $69 a barrel.
In a note to clients, JP Morgan analysts estimated the price of crude could jump between $5 and $30 a barrel in the months ahead.
(Graphic - Energy shrinking weight in S&P 500: https://fingfx.thomsonreuters.com/gfx/mkt/12/6163/6094/Pasted%20Image.jpg)
"The apparent sophistication of the attack in terms of both the target and its execution should re-establish or re-emphasize a geopolitical risk premium into the price of oil," they said.
Ledoux noted that some of the companies with the biggest stock gains on Monday are those with high costs of extracting oil.
"Their cost of drilling and cost of extraction are the highest, so they get the biggest swing from a higher commodity price," Ledoux said.
The impact from the oil price spike spread beyond the energy sector, with shares of airline companies, which count fuel as a major cost, falling broadly. American Airlines Group Inc (O:AAL) shares fell 7.3%, while United Airlines Holdings Inc (O:UAL) dropped 2.8%.