The Energy Select Sector SPDR (NYSEArca: XLE) is acting somewhat better to start 2016 than it did in the previous two years when it was the worst-performing sector SPDR exchange traded fund. That much is highlighted by a better than 7% surge for the benchmark energy ETF over the past month.
With oil prices showing signs of bouncing back, the once downtrodden energy sector could be poised to extend its recent rally. The low oil environment may persist as the Organization of Petroleum Exporting Countries projects demand for its crude to remain lower in 2020 than in 2016 as rivals remain resilient despite the depressed prices.
“Energy may currently be one of the most battered and beaten down sectors, but that’s not stopping one fund manager from finding value. Aureus Asset Management’s Karen Firestone believes the only risk right now is not buying the sector,” reports Pippa Stevens for CNBC.
Oil majors have tightened their belts, reducing costs by laying off thousands of workers and halted many new projects. Large integrated oil companies are expected to hold up better than drilling stocks as these giants have both upstream exploration and production, along with downstream refining operations.
Last month “Chevron announced earlier this month it would cut capital spending by 24 percent in 2016 to $26.6 billion. The company will not issue production forecasts until it reports earnings in January, but management previously said it expects output growth of 13 to 15 percent — about 2.9 million to 3 million barrels per day — by the end of 2017,” according to CNBC.
“Royal Dutch Shell Plc had its debt rating cut to the lowest since Standard & Poor’s began coverage in 1990, and downgrades of several other major European oil and gas companies will probably follow in coming weeks,” reports Bloomberg.
“Firestone believes that there is value in certain names within the energy sector. Specifically, she’s watching Schlumberger,” according to CNBC.
Schlumberger (NYSE: SLB), the world’s largest provider of oilfield services, is a top 10 holding in XLE.
Energy Select Sector SPDR
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.