The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, is still down 7.5% year-to-date, making it the worst performer among the sector SPDR ETFs.
However, XLE is up almost 4.5% in the fourth quarter and some analysts are expecting 2018 will bring a rebound for major oil stocks.
Investors shouldn’t forget about the demand side either, especially with a growing global economy. Citigroup projects a greater likelihood of persistent shortage of oil than a big jump in supply over the coming quarters.
Ed Morse, global head of commodities at the bank, argued that a handful of OPEC members might already be pumping at maximum capacity already, and due to weak investment in exploration and development, there is a greater risk of a market squeeze once demand picks up, especially from a growing Chinese economy.
“In 2018, companies from Royal Dutch Shell Plc to Exxon Mobil Corp. will find themselves with a surplus of cash to fund dividends, ruling the world of deep water mega-projects and even coming out ahead in tax negotiations with oil-reliant governments around the globe, according to Michele Della Vigna, Goldman’s head of energy-industry research,” reports Bloomberg.