“On a relative basis U.S. energy companies continue to trade at the largest discount to the broader market since at least 1995. The P/B on the sector is about 50% of the broader market’s,” notes BlackRock.
How the U.S. dollar behaves throughout 2019 will be meaningful for energy sector valuations and the group’s performance.
“Since 1995, the relative P/B of the energy sector has been approximately 10% higher when the Dollar Index (DXY) is lower year-over-year versus times when the dollar is higher,” according to BlackRock. “This relationship is arguably a function of several factors. A weaker dollar is supportive of commodity prices, which are generally denominated in dollars, as well as representing a de facto monetary easing.”
For more information on the oil market, visit our energy category.