Small-cap energy stocks have been riding on positive momentum since the start of this year, primarily due to improving oil prices. The Russell 2000 Energy index generated a year-to-date growth of more than 16%, outperforming the gain of 6% from the Russell 2000 index by a wide margin.
Analysts believe the Russell 2000 Energy index is likely to extend the rally to the second half of the year, driven by increasing oil prices and investments in growth opportunities from energy companies. Oil prices currently stand at the highest level since 2014 due to declining supplies and strengthening demand.
U.S. West Texas Intermediate (WTI) crude oil ended the session around $74.60 a barrel – the highest settlement since the end of 2014. Brent crude trades around $78.10 per barrel at present. Morgan Stanley, on the other hand, increased its price target for Brent; the firm expects Brent crude to trade around $85 per barrel during the second half of 2018.
Trade restrictions on Iran and supply disruptions from Libya and Canada have also been contributing positively to oil price future fundamentals. Energy stocks are enjoying the improving oil market dynamics.
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Small-cap Energy Stocks Benefit from Oil Price Hike
Denbury Resources (NYSE:DNR), a small-cap exploration & production company, had a share price growth of 100% since the start of this year. The company reported 28% year-over-year revenue growth in the first quarter and claims that the revenue growth will expand further in the following quarters due to higher oil prices.
Chris Kendall, Denbury’s President and CEO, commented, “The growth in oil prices combined with our peer-leading oil mix and meaningful debt puts us in a position to generate solid financial numbers in the following quarters.”
VAALCO Energy, Inc. (NYSE:EGY) shares jumped more than 200% in the last three months alone, thanks to its robust growth in first-quarter financial numbers. The company says its average oil price of $68.69 in the first quarter allowed it to generate considerable improvement in revenues and margins. The management has also increased their revenue and production guidance for the full year, driven by the positive future fundamentals of oil markets.
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