Iraq Violence Contributes to Ongoing Strength in Oil, Energy Stocks

NEW YORK (TheStreet) -- As tension in the Middle East -- including the latest fighting in Iraq, has risen this year, oil prices have spiked higher, leading to a strong, lengthy bull run in the Energy Select Sector SPDR (XLE), an exchange-traded fund that tracks the energy sector.

The strength in oil has led to price leadership in companies such as Exxon Mobil (XOM), Chevron (CVX), Schlumberger (SLB), ConocoPhillips (COP), EOG Resources (EOG), and Occidental Petroleum (OXY).

XOM Chart
XOM data by YCharts

Brent oil, represented by United States Brent Oil Fund (BNO), has been the catalyst for energy sector leadership.

Brent futures broke to more than $115 in last week's trade for the first time in 2014. Concerns of supply disruptions in Iraq supported oil prices. Many Iraqis were killed during a battle in the provincial capital Baquba.

The civil war in Iraq shows no sign of ending soon as the Sunni insurgents continue to gain ground.

XLE Chart
XLE data by YCharts

The correlation between Brent oil and the energy sector is very strong, meaning the two assets rise and fall in price together.

Studying the past five years of price data, there is a clear trend that emerges between when oil prices spike and how energy stocks react.

The overall price of oil does not seem to matter. Rather, it's the percentage price change of oil. For example, when oil futures spiked 10% higher over the past month, energy stocks followed for a 10% increase of their own.

If you liked this article you might like

Charts Signal Buying Opportunity for Nvidia Cramer's 'Off the Charts'

Dow, S&P 500 Set New Records as Fed Moves to Unwind Balance Sheet

Stocks In Negative Territory as Chances for December Hike Surge

Energy Stocks Lead a Neutral Market Even After Oil Inventories Spike

Here's Where Wall Street Stands