Over the last three years, the energy market has experienced intense price volatility. However, it seems that following an extended period of relative weakness, energy stocks are finally on their way to recovery. With crude now back over $60, the panic that swept over the market is all but gone. The incredible turnaround has stoked high expectations from the energy sector going into the final quarter of 2017.

Let's take a look at how oil prices behaved during the fourth quarter of 2017 and what makes the Energy sector a material factor this earnings season.

Q4 Report Card: Oil Prices End on a Positive Note

The u.s. oil benchmark wrapped up a strong quarter amid continued declines in domestic inventories and an improving supply-demand narrative.

Oil stockpiles have shrunk in 32 of the last 40 weeks and are down almost 114 million barrels since April. The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 419.5 million barrels, current crude supplies are 13.2% below the year-ago period and the lowest since 2015.

Another reason why the U.S. oil benchmark soared nearly 17% last quarter revolved around expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March. True to predictions, the coalition prolonged the current dynamic for another nine months to the end of 2018. The agreement, now renewed twice, keeps 1.8 million barrels a day (or 2% of global supply) off the market in an attempt to clear a supply glut.

With fundamentals pointing to a tighter market, oil ended 2017 at $60.42 per barrel – the first settlement above $60 since June 2015. A year ago, crude futures hovered around the $53 per barrel mark.

All oil-related stocks stand to benefit from recovering commodity prices as they will be able to extract more value for their products.

Year-over-Year Gain Leads to Bullish Expectations