The energy sector has been one of the market’s worst performers so far this year.
But after this past weekend’s attacks on Saudi Arabia’s oil infrastructure, energy stocks spiked alongside surging oil prices.
The attacks—which Saudi Arabia says were “unquestionably sponsored by Iran,”—knocked out roughly 5% of global supplies, or 5.7 million barrels per day of lost production marking the single biggest disruption to production on record.
The rally in energy stocks has been led by small- and mid-cap explorers—including Extraction Oil & Gas (NASDAQ: XOG) and Whiting Petroleum (NYSE: WLL), which were up as much as 29% and 57% on Monday—that are heavily shorted, according to Citi analyst Scott Gruber.
Explorers are typically a riskier segment of the energy sector given their growing debt piles. According to Goldman Sachs energy analyst Brian Singer, investors looking to play the boost from higher oil prices should focus on those stocks with limited oil hedges and a high percentage of oil production.
The Goldman analyst also highlighted Kosmos Energy (NYSE: KOS), and said the offshore driller is already “well positioned” with a possible asset sale by year-end before the positive impact from higher oil prices. Kosmos is up nearly 4% over the last week and 61% year-to-date.
As for the oil majors, Singer says ConocoPhillips (NYSE: COP) will see the biggest upside from the Saudi oil disruption considering its underperformance compared to peers so far this year. ConocoPhillips is down nearly -4% so far in 2019, but is up 4.9% over the last week.
“We also see a positive set up into the company’s November analyst day given robust free cash flow at a lower crude environment,” Singer said.