Investors following the energy sector know the seventh-largest sector weight in the S&P 500 is getting pounded this year. For example, the Energy Select Sector SPDR (NYSEArca: XLE), the largest exchange traded fund dedicated to energy equities, is down nearly 14% year-to-date compared to a 9% gain for the S&P 500.
Exploration and production ETFs are also being taken to task. Just look at the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP), which is lower by 21% year-to-date.
Given the historical sensitivity of exploration and production names to oil prices, it would stand to reason that lower oil output would benefit the industry. While the Organization of Petroleum Exporting Countries (OPEC) has moved to trim output, U.S. shale producers are boosting production as highlighted by the rising rig count in the U.S.
However, some market observers believe the downtrodden sector could finally be close to putting in a bottom.
Morgan Stanley energy analyst Evan Calio “expects oil prices to rise to the mid-to-high $50s over the summer and into the fall, supported by drawdowns of crude inventories and the effect of output reductions announced by the Organization of Petroleum Exporting Countries. A rally in energy stocks could be under way, after their 2% gain on Friday,” reports Andrew Bary for Barron’s.