Did Integrated Energy Stocks Outperform SPY in 3Q17?


Oct. 4 2017, Updated 10:40 a.m. ET

Performance of integrated energy stocks

In 3Q17, Royal Dutch Shell (RDS.A) stock rose 13.5%, higher than its peers ExxonMobil (XOM), BP (BP), and Chevron (CVX). BP and CVX rose 10.9% and 12.7%, respectively, in the same period. However, XOM had the lowest rise of 1.8% in the current quarter.

Also, the SPDR S&P 500 ETF (SPY) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 3.5% and 4.9%, respectively, in the same period. Among the integrated energy stocks, Shell, BP, and CVX outperformed the market in 3Q17. However, XOM underperformed the market in the third quarter.

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WTI rises in 3Q17

Usually, integrated energy stocks show high positive correlation to crude oil prices. Thus, a rise in WTI prices in 3Q17 could have boosted these stocks. We discuss correlation later in this series.

In 3Q17, WTI prices were strongly influenced by Hurricane Harvey. The hurricane, which hit Texas at the end of August, led to a glut of crude oil inventory in the US market. Approximately 30% of refining capacity in the US was impacted, leading to shutdowns or reduced operating levels. These events resulted in a drop in crude oil demand from the American refineries, leading to an inventory buildup. 

However, most of the refineries have resumed operations with the goal of processing crude oil at their pre-hurricane levels. As a result, the excess inventories in the market have started declining, leading to a rise in oil prices. Overall, WTI prices have surged 10.0% in 3Q17.

Shell, BP, and CVX posted strong 2Q17 earnings, which surpassed estimates and further supported their stock prices. However, XOM’s 2Q17 earnings missed estimates, which could be the reason for the stock to underperform in 3Q17.


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