Energy stocks are looking lively today, with energy the best performing sector in the US and second best performing sector in Europe. The likely reason for the buoyant performance is a continued improvement in fundamentals. Inventory data released yesterday showed a steady decline in crude and refined product (ex-SPR) in the United States. Total barrels of crude and refined product are down about 165M barrels from this time last year.

While North American energy equities have underperformed the price of crude in recent months, the long-term correlation is pretty tight, suggesting we are getting mean reversion.

Despite the increase in US production, crude oil prices continue to tick higher. Over the last year, North American production is up over 1M barrels/day while prices are some 25% higher as well. On annualized basis, North American energy revenues are around $3.5 billion higher today than this time last year (1M barrels/day more production * $14/barrel higher prices * 250 days).

These improved fundamentals are feeding into equity expectations. Over the last three months, 87% of North American energy companies experienced positive sales revisions.

And, over the last three months, 85% of North American energy companies experienced positive earnings revisions as well.