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Energy stocks posted their first four-week winning streak of 2017, and some portfolio managers believe the sector can keep rallying.
The Energy Select Sector SPDR exchange-traded fund surged an additional 2.2 percent this week to post the best weekly gain of 2017.
Over the last month, the energy ETF has risen 3.7 percent, tracking just behind the 5 percent rally in U.S. West Texas Intermediate crude oil futures. Beyond gains in the underlying commodity, analysts pointed to some tailwinds for energy stocks.
Energy Select Sector SPDR ETF year to date
While U.S. crude is about 7 percent this year, the Energy Select Sector ETF has fallen about 12.6 percent. That marks a fairly large spread in performance, said Rob Thummel, portfolio manager at Tortoise Capital.
"It needs to play a little catch up yet," he told CNBC. He noted that some of the week's best performers were previously some of the year's biggest laggards, including Chesapeake Energy and Range Resources.
Oil prices and energy stocks stand to get a boost as OPEC discusses extending its deal with other exporters to cut production, in Thummel's view. The producers aim to shrink brimming global stockpiles of oil that have weighed on prices for three years.
At the same time, OPEC and the International Energy Agency both increased their forecasts for crude oil demand this week. On the supply side, more reliable monthly U.S. production figures show American drillers pumped less oil in June than preliminary weekly figures suggested, Thummel said.
Jay Hatfield, CEO of Infrastructure Capital Advisors, believes oil bears got too fixated on the idea that an early-year surge in U.S. drilling would prevent OPEC from draining the global glut. That would send oil prices back below $40 a barrel, putting some U.S. producers in financial stress, the thesis went.
"In our opinion, investors got way, way, way too bearish about oil, and like a lot of other situations where there's short sellers, they have a one-factor model," Hatfield said.
But the drop in energy stock prices means that drillers faced higher costs of capital, Hatfield said. Fewer drillers are raising money in equity markets, which suggests U.S. production growth will moderate, he added.
"The notion that companies are going to drill until they end up in bankruptcy is just ludicrous," he said.
Meanwhile, the shorts missed out on the convergence of four trends that could boost energy stocks during a seasonally weak period, Hatfield said.
The U.S. dollar has weakened, making greenback-denominated oil more affordable. Strong economic growth is boosting energy demand. The price gap between international benchmark and WTI has widened, which encourages U.S. oil exports. The spread between oil and gasoline prices has also blown out, which gives refiners incentive to consume more oil.
Investors may also be ready to rotate out of high-flying technology stocks and put profits to work in the energy sector, the worst-performing S&P sector of the year, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions.
Essner said the end of this year is starting to look like the final months of 2016, when the slumping energy sector surged ahead to become the best-performing slice of the S&P 500.
Drillers also expressed a commitment to profitability over growth in second-quarter earnings, giving Wall Street another reason to reconsider energy stocks, Essner noted.
— CNBC's Chris Hayes contributed to this story.