Energy producers have tightened their belts as oil prices plunged, trimming trillions of dollars from future projects and putting added pressure on the oil services companies, along with related exchange traded funds, that cater to the industry.
The oil services sector has been underperforming integrated oil companies and could continue to fall behind. Over the past year, the Market Vectors Oil Service ETF (NYSEArca: OIH) declined 42.4%, iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) decreased 42.6% and SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) plunged 53.1%. Meanwhile, the Energy Select Sector SPDR (NYSEArca: XLE) retreated 30.9% over the past year.
About $1.5 trillion of potential global investment, including money that could go into North America’s shale oil boom, is “out of the money” at current oil prices close to $50 per barrel and is unlikely to go ahead, reports Christopher Adams for the Financial Times.
With low oil prices pressuring oil producers’ bottom line, industry experts expect capital spending on new projects to decline by 20% and 30% on average, according to Wood Mackenzie, an energy consultancy. The consultant calculated that about $220 billion in investments have been cut so far, or $20 billion more than previously estimated two months ago, after the recent price declines.
West Texas Intermediate crude oil futures were hovering around $46.5 per barrel Monday while Brent crude oil futures were trading at about $48.7 per barrel.
The U.S. shale oil industry has reacted the fastest to the market shift where “deep cuts” in North America account for over half of a 45% fall in capital spending across the Americas.