Energy Stocks Could Climb Higher as OPEC Output Falls

The rotation into energy stock from high flying momentum stocks continued to move higher on Wednesday and should get a boost Thursday after OPEC announced a decline in output. Prices of WTI (NYSE:WTI) crude oil pierced the $103 per barrel level and are poised to climb to test resistance near the $105 level.

Energy stocks started to gain traction in early April as investors exited momentum stocks such as bio-tech and social media stocks. The uptrend continued to gain steam as WTI moved above $100 dollar per barrel. With OPEC announcing a decline in output for March, energy shares should continue to make headway.

OPEC’s oil output tumbled to its lowest level this year in March. Production by the Organization of the Petroleum Exporting Countries fell by over 500,000 a day last month to 29.6 million barrels a day according to the group’s monthly oil market report. A steep drop in Iraq’s oil output of nearly 300,000 barrels a day led the decline.

Energy stocks were also buoyed by an increase in the demand for gasoline as reported by the Energy Inflation Administration on Wednesday. Over the last four weeks, gasoline demand averaged 8.8 million barrels per day, up by 4.4% from the same period last year.

The XLE (Energy Select Sector Spider) broke out last week and continue to trade above horizontal trend line support which used to be resistance. Support below the former breakout level is seen near the 50-day moving average near 86.50. Resistance is seen near the recent highs at 91.50.

Momentum on the XLE (NYSEARCA:XLE) is positive as the MACD (moving average convergence divergence) index is printing in positive territory with a flattening trajectory. The relative strength index (RSI) moved higher with price action, reflecting accelerating positive momentum while printing near 62, which is on the upper end of the neutral range.