It was a big five trading days for oil and gas shares last week with Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) enjoying gains of 19% and 21% respectively.
The rally in oil stocks comes after the oil price enjoyed another strong week of gains.
The price of a barrel of oil rose close to 10% last week and is now around 35% up from the 12-year low which the commodity hit less than two months ago.
For investors who have been caught flat footed and are now wondering if they have missed a chance to profit from rising oil prices there is both good news and bad.
The good news is that with the oil price still at under US$40 a barrel and stocks such as Origin and Santos still down over 50% despite last week's rally there would appear to be a solid case for further upside in the medium to longer term in what is an inherently cyclical sector.
The bad news however is that there remains a significant supply-demand imbalance across global oil markets which is predicted to take until 2017 to level out.
What now?
It's quite possible that we see a pullback in the oil price in the near term and a corresponding pull back in oil and gas shares.
As the saying goes however, "no one rings a bell at the bottom" so there is an equally good chance that the lows have been seen.
For investors, looking for opportunities within the energy sector, as always a focus on fundamental value is a better long term strategy than simply trying to pick the momentum.
Recent commentary surrounding Origin including talk of breaking up the business to improve shareholder value and a newly signed LNG agreement are certainly positives and could arguably help support a higher underlying valuation of the company than the current share price suggests.
