The energy sector’s rally on the back of rebounding oil prices has been undoubtedly impressive. Just look at exchange traded funds (ETFs) such as the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) and the Energy Select Sector SPDR (NYSEArca: XLE).
XLE, the largest diversified energy ETF by assets; and XOP, the largest ETF focusing on exploration and production companies; are up 17.6% and 31.9%, respectively, over the past three months. However, those rallies have some chartists concerned energy stocks and ETFs are vulnerable to near-term pullbacks.
Still, making the sector’s rebound this year all the more impressive is that it comes against the backdrop of still low oil prices, little help in the way of significant production cuts and massive spending reductions by global oil majors.
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.
Concerns over Chinese oil demand also pressured prices. China revealed that its service activity expanded at a slower-than-expected pace, which has fueled pessimism over a potential slowdown in the second largest oil-consuming country in the world.[related_stories]
“XLE ramped up 37% since the February lows and in the last few days, has begun to give back some of that gain. The weekly chart should see a resolution in one direction or the other fairly soon as price is reverting back down towards the rising trendline after failing to break above the supply band at $69 last week,” according to See It Market.