Shares of relatively tiny oil driller SM Energy (NYSE: SM) jumped nearly 14% in the first half hour of trading on July 21. Following close behind were Canadian international oil company Vermilion Energy (NYSE: VET) and U.S.-based giant Occidental Petroleum (NYSE: OXY), both of which were up around 10%. The big news is that oil prices were in rally mode. That said, the previous day's news that Chevron had agreed to buy Noble Energy probably helped the mood some, too.
Oil prices are still hovering at a level that makes it hard for oil companies to turn a profit. So any price rally needs to be taken with a grain of salt. There's only just so much that a gain of a few percentage points will do. What oil companies really need is a sustained rally, which will require a material rebalancing of supply and demand. Right now, thanks to COVID-19, supply is outstripping demand by a notable margin, especially when you consider all the oil that has been put into storage. That extra energy needs to be worked off before oil is likely to see a material price advance.
Image source: Getty Images.