Energy sector outperforms S&P 500 in Q3 as oil prices rise

The energy sector (XLE) advanced 16% in the July-Sep quarter, compared to a 2% rise in the broader market (SP500), finishing as the top-performing market sector.

Expanding conflict in the Middle East squeezed global oil supplies in the quarter and drove fuel prices near $100 a barrel, matching surging sector earnings projections.

Crude oil (CL1:COM) logged quarterly gains of nearly 32%, approaching highs for the year. Meanwhile, stubborn inflation led the Federal Reserve to raise interest rates for the first time since 2023.

Energy Sector Scorecard

• Sector Return: +16%
• Best Performer: Marathon Petroleum (+47.93%)
• Worst Performer: Texas Pacific Land (-19.98%)
• Top Theme: Geopolitical uncertainity

"It is curious that in recent weeks some news indicated an improvement in the situation in Hormuz, and several indications that negotiations were taking place. The big point is that global oil stocks are at their lowest, the market is tight, and even if the situation is resolved (it still doesn't look like the base scenario), the price will take time to retreat," explained Seeking Alpha analyst Multiplo Invest.

Top energy performers of the quarter

On the individual front, Marathon Petroleum (MPC) was the biggest winner in Q3, gaining nearly 48%. It was followed by Valero Energy (VLO), which gained 45% in the last quarter.

"Marathon Petroleum and Valero Energy and have similar business models in the fuel refining and distribution sector. Tensions in the Middle East and even the Ukrainian War create significant obstacles to the production of petroleum products. Both companies benefited from expanding refining margins in Q3," the analyst added.

Here are the top gainers of the quarter:

• Marathon Petroleum (MPC): +47.93% - Quant rating: Strong Buy with a score of 4.97 out of 5
• Valero Energy (VLO): +45.08% - Quant rating: Strong Buy with a score of 4.96 out of 5
• Phillips 66 (PSX): +44.47% - Quant rating: Strong Buy with a score of 4.95 out of 5
• APA (APA): +28.03% - Quant rating: Hold with a score of 3.24 out of 5
• Chevron (CVX): +20.64% - Quant rating: Strong Buy with a score of 4.88 out of 5

Top energy detractor of the quarter

On the other hand, Texas Pacific Land (TPL) was the biggest detractor in Q3, slipping 20% between July to September. It was followed by EQT (EQT), which lost 7% in the last quarter.

"In the case of Texas Pacific, the results displeased investors. The company did not report revenue from the sale of land, and revenue from water services fell short of expectations. EQT also reported results below expectations, especially with natural gas prices below what investors expected," Multiplo Invest noted.

Here are the top losers of the quarter:

• Texas Pacific Land (TPL): -19.98% - Quant rating: Sell with a score of 2.17 out of 5
• EQT (EQT): -7.10% - Quant rating: Hold with a score of 2.79 out of 5
• The Williams Companies: -7.07% Quant rating: Hold with a score of 3.05 out of 5
• Kinder Morgan (KMI): -6.12% Quant rating: Hold with a score of 3.41 out of 5
• Expand Energy (EXE): -5.72% Quant rating: Hold with a score of 2.95 out of 5