The Energy Select Sector SPDR (NYSEArca: XLE), the largest exchange traded fund dedicated to energy equities, continues slumping and is down 3.3% this week, underscoring the point that plenty of concerns and questions linger for the energy sector.
Valuation concerns for the energy sector come even as the sector is featured prominently in an array of value ETFs. However, the sector looks more like a value trap than a legitimate value play over the near-term.
Rig counts have recently ticked higher and with credit and earnings issues improving for some U.S. shale drillers, those companies may seize the opportunity to exploit higher pricing in the near-term. Some traders are not convinced and caution about betting on an energy sector rebound.
Obviously, production is a key element in the decision-making process regarding energy investments. Currently, oil investors face conflicting reports regarding output. For example, Venezuela’s crude output is plunging to multi-year lows while Algeria is looking to boost production.
“The oil decline continues. Amid fresh supply worries, crude oil futures fell to $42.05 per barrel on Wednesday, their lowest level since August of 2016. That decline sent the popular XLE energy sector ETF to its lowest level in more than a year,” reports CNBC.