Is now the time to buy battered energy stocks?

The energy sector has been in a world of hurt for about three years running.

Crude-oil prices CLN7, +0.54%  were north of $100 a barrel back in mid-2014, but have been cut in half to less than $50 a barrel currently. The pain is hardly new, as crude oil hasn’t traded north of $60 a barrel since mid-2015. And things don’t look to be getting better soon, as oil is trading within spitting distance of new 52-week lows.

With oil prices softening once more, shares of energy stocks are under serious pressure. Exxon Mobil Corp. XOM, +0.23%  and Chevron Corp. CVX, -0.25%  are both near 52-week lows after declining around 8% year-to-date compared with 8% gains for the S&P 500 index. Energy ETFs like the Energy Select Sector SPDRXLE, -0.76%  and Vanguard Energy ETF VDE, -0.94% are down even more, logging declines of 12% and 14%, respectively, this year.

But as the old saying goes, buying when there is blood in the streets can often be a profitable strategy for aggressive investors.

Saudi output wanes: Saudi Arabia is the top oil exporter in the world, so recent news that it would cut back on output to Asia by 300,000 barrels per day — a deeper-than-expected rollback — as well as reductions in July exports to the U.S. by as much as 35% are encouraging. That is an important development in cutting down global supply levels and supporting prices.

U.S. inventories are tightening: While the Energy Information Administration reported a surprise increase in supplies two weeks ago, tighter inventories have been the trend. The weekly petroleum status report from the U.S. Energy Information Administration confirmed that, as stockpiles resumed their decline in the most recent report released Wednesday and have shrunk in nine out of the past 10 weeks.

Dollar softens: After a big run for the U.S. dollar after Election Day last year, the greenback has slowly been losing momentum since the start of this year. The U.S. Dollar Index DXY, -0.09%  has slumped from a reading of about 103 after Christmas to just 97 despite all the talk of tighter monetary policy and better U.S. economic growth. A weak dollar helps boost commodity prices, and helps create a tailwind for crude oil and energy stocks.

Big dividends: For all the overtures of the Federal Reserve raising rates, a 10-year Treasury note TMUBMUSD10Y, +0.39%  still yields a meager 2.2% or so. That makes the nearly 7% yield of oil giant BP PLC BP., +0.92% BP, -0.37%  quite compelling even if the stock has slightly underperformed in the past year based on share price alone.

Source: Bloomber Terminal

Velizar Mitov- Trader