ASX oil stocks are firing up as crude hits 2-month high on expectations of further gains

The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) energy sector is among the best performing parts of the market today as sentiment towards oil is turning. Should you be buying into the rally?

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Our S&P/ASX 200 (Index:^AXJO) (ASX:XJO) oil stocks have started the week on a high note as the crude price jumped to a two-month high as it rallied further into a new bull market.

The Brent oil price benchmark gained 2.5% to $62.70 a barrel over the weekend, which takes its gains since its November trough to 24%.

The rising oil price has fired up energy stocks like the Santos Ltd (ASX: STO) share price, Woodside Petroleum Limited (ASX: WPL) share price, Oil Search Limited (ASX: OSH) share price and Origin Energy Ltd (ASX: ORG) share price, which are up between 8% and 10% over the period when the ASX 200 index has gained less than 4%.

Oil floating to the top

There could be more gains for the sector as the oil price is expected to stay on the front foot on signs that the US and China are closing in on resolving their trade war.

China offered to embark on a six-year spending spree to buy US-made goods in an effort to narrow the trade gap between the world's two largest economies.

US President Donald Trump used the record trade gap between the two countries as an excuse to impose trade tariffs on Chinese imports and could respond well to the overtures.

A surge in Chinese demand for US goods will add to American economic growth while Bloomberg reports that the International Energy Agency (IEA) is forecasting another year of growing demand for oil.

The latest comments from the Organization of the Petroleum Exporting Countries (OPEC) and Russia is also helping support the oil price as these major oil producing nations are holding the line in restricting global oil production.

Sentiment towards oil is turning. The outlook for the commodity was particularly bearish towards the end of 2018 when the price peaked at over US$86 a barrel and collapsed to US$50.47 a barrel just before Christmas.

Foolish takeaway

The problem is geo-politics is extremely hard to forecast with any level of certainty and that means the gains made by the sector could turn on a dime.

I rate oil as the most politically sensitive major commodity as it's often used as a political weapon by the US to win over voters and compel countries to tow Trump's line.

We don't see the same level of direct interference for iron ore and copper and that's why I prefer being overweight on miners instead of ASX energy stocks even though some of our gas producers look attractive on fundamentals.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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