February was unkind to energy ETFs, including the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund. XLE shed 10.8% last month.

Making that drop all the more concerning is that XLE is, historically, one of the two best sector SPDR ETFs in February. Same goes for March and April. XLE’s February performance was its worst monthly showing since December 2015.

Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. 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.

“Domestic crude supplies rose by 3 million barrels for the week ended Feb. 23. Analysts surveyed by S&P Global Platts had forecast a climb of 2.1 million barrels. Rising supply, along with falling demand, is a primary driver behind weakness in oil prices,” reports MarketWatch.

Market observers and analysts argue that U.S. energy stocks are in a position to outperform broader equity markets this year, even if oil prices don’t move higher. The energy industry has grown more efficient after cutting costs in response to the plunge in crude oil prices in previous years, so they are now in a better position to improve revenue at lower oil prices.

“Government data also showed a surprise build in U.S. gasoline stocks, which rose by 2.5M barrels vs. expectations for a ~200K-barrel drawdown,” according to Seeking Alpha. “Prices for the April WTI contract settled 4.8% lower in February, the first monthly loss since August, while Brent crude fell 4.7% for the month in its first monthly loss since June.”

Rivals to XLE include the Vanguard Energy ETF (NYSEArca: VDE), iShares U.S. Energy ETF (NYSEArca: IYE) and the Fidelity MSCI Energy Index ETF (NYSEArca: FENY).

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