Overall, the stock market was fairly calm on Wednesday, although excitement over meme stocks once again dominated investors’ attention. By the end of the trading day, neither the Dow Jones Industrial Average, the S&P 500, nor the Nasdaq Composite had made big moves from yesterday’s closing levels.
However, energy stocks were once again in the spotlight. As prices for crude oil and other energy products continue to climb, Wednesday was a good day for oil services specialist Schlumberger (NYSE:SLB) and refinery operator HollyFrontier (NYSE:HFC). Below, we’ll go into more detail about why these two companies are standing out in a hot sector.
Looking to add value in energy
Shares of Schlumberger were higher by nearly 8% on Wednesday. The provider of oilfield services has seen its stock more than double since late October, riding stronger market conditions across the industry.
Part of the gains for Schlumberger reflected enthusiasm for the energy sector generally. Crude oil prices in the U.S. once again picked up ground, gaining about $1 to approach $69 per barrel, and international crude benchmarks remained at even higher levels. As the global economy starts to regain momentum, commodities traders see rising demand for energy starting to turn the tide of what’s been a difficult period of supply gluts and overproduction.
Schlumberger stands to benefit in several ways from the reopening trade. With extensive operations both in the U.S. and internationally, Schlumberger will benefit from the materials and services it provides whenever an exploration and production company decides to drill a well or conduct testing to find promising new plays.
Many investors focus solely on companies that actually take oil out of the ground. But pick-and-shovel stocks like Schlumberger could see even bigger gains if prices move up and stay up.
A refined choice
Meanwhile, HollyFrontier shares picked up 5%. Just like oil services companies, refinery specialists haven’t gotten as much attention as exploration and production companies, but in many ways, the conditions are even closer to ideal for HollyFrontier and its peers.
Oil prices have picked up steam, but gasoline has risen at an even faster rate. With prices at or near $3 per gallon in many states, gasoline is now fetching the most from drivers at the pump in several years. That’s helped HollyFrontier score a double over the past seven months or so, but the stock trades at just half where it was in 2018.
HollyFrontier has had to deal with its share of challenges. High costs during the pandemic and impacts from the winter storms in Texas hurt earnings. However, if high gas prices can widen refining spreads in the second quarter and beyond, then the future could look a lot brighter for HollyFrontier.
$70 is the next hurdle
Energy stocks are watching the oil market very closely to see if West Texas Intermediate crude can climb above the $70 per barrel level. If that happens, it could signal another leg up for stocks in the sector — and that would include not only producers but also companies like Schlumberger, HollyFrontier, and the other ancillary energy companies that are essential in the process of delivering the energy products that people around the world take for granted.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.