Investors have been hearing plenty about the struggles of the Energy Select Sector SPDR (NYSEArca: XLE), the largest exchange traded fund dedicated to energy equities, and rival energy ETFs this year.

Put simply, many investors by now that energy, the seventh-largest sector weight in the S&P 500, is the worst-performing group in the U.S. this year.

XLE is down 12% year-to-date, by far the worst performance among the sector SPDR ETFs. That also makes XLE the only sector SPDR ETF that is in the red year-to-date. With the energy sector’s struggles have come ample speculation and conjecture regarding when the sector will rebound and if buying opportunities are near.

The challenge for energy equities is that some oil market observers see more declines coming for crude. Oil traders are concerned over how fast U.S. shale oil producers will increase production to capture the rising prices.

Investors considering ETFs such as XLE and rival ETFs such as the Fidelity MSCI Energy Index ETF (NYSEArca: FENY) and the Vanguard Energy ETF (NYSEArca: VDE) need to again monitor oil production data and credit issues at smaller energy producers.

There is even talk that some investors may be willing to step out of high-flying sectors, such as tech, and revisit downtrodden energy.

“The flip side is the fear that the stock price appreciation is unsustainable given the size of the move to-date. This perspective aligns with the notion that stepping out of one high-priced area of the market and potentially looking to step into another area with better relative value may be an attractive rotation opportunity. That’s where the bullish camp for energy may ultimately reside despite the bleak prospects of the current trend,” according to ETF Daily News.

OPEC renewed an agreement with a dozen other crude-oil producers to withhold supplies into March 2018 in an attempt to raise prices despite increasing output from U.S. shale oil producers, the Wall Street Journal reports. The agreement would maintain levels of production at about 1.8 million barrels per day lower than late last year, or about 2% of global oil supply being withheld.

“Similarly, XLE has been unable to generate sustainable momentum to break above this same intermediate-term trend line. A surging move above the 50-day simple moving average may ultimately mark the start of positive divergence characteristics for energy stocks relative to the rest of the market,” according to ETF Daily News.

For more information on the oil market, visit our oil category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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