On a year-to-date basis, the Energy Select Sector SPDR ETF (XLE) has risen 2.2%, while US crude oil active futures have risen 20.4%. Among the sector-specific SPDR ETFs, XLE was the underperformer. The Technology Select Sector SPDR ETF (XLK) had the highest rise of 22.2% among the SPDR ETFs. During this period, the S&P 500 Index (SPY) has risen 13.5%. Energy stocks account for around 5% of the S&P 500 Index.
In an interview with CNBC, Ari Wald, the head of technical analysis at Oppenheimer, highlighted the fact that energy stocks haven’t captured the upside in oil prices. However, energy stocks were hit hard by any sharp decline in oil prices. Since 2016, US or WTI crude oil active futures averaged $53.79 per barrel. The price level is close to some US oil producers’ break-even or even lower than their wellhead prices. Apart from the lower break-even prices, the transportation bottleneck also limited their realized prices than the benchmark prices. Currently, lower natural gas prices have played a significant role in energy stocks’ underperformance. Falling natural gas prices are also forcing oil producers to reduce their output.
Wald also mentioned that ExxonMobil (XOM) is below its 200-day moving average. According to Wald, the downtrend continued. He recommended “underweight selling” on ExxonMobil. In the same interview, Gina Sanchez, Chantico Global’s CEO, highlighted the energy sector’s weak fundamentals. She said that rising inventories impact oil’s demand sentiments. Lower oil prices and the stronger US dollar could drag the energy sector’s sentiments.
XOP was hit harder
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) has fallen 16.2%. XOP fell the most among major energy subsector ETFs. XOP tracks US upstream companies. As we discussed earlier, natural gas is also an important driving factor for US oil and natural gas producers. However, the Alerian MLP ETF (AMLP) rose 7.4%—the only gainer among major energy subsector ETFs. In fact, lower interest rates could attract investors to midstream companies. AMLP has a dividend yield of 8.4%—the highest among the energy subsector ETFs. As we discussed earlier, the transportation bottleneck helped the midstream subsector’s long-term growth.