The energy sector is already this year’s worst-performing group and oil is already one of this year’s worst-performing commodities, but more downside could be seen for some energy exchange traded funds in September.
While the Organization of Petroleum Exporting Countries have moved to cut production, expectations of continued U.S. shale production remain a deterring factor. Nevertheless, recent U.S. inventory drawdowns, which if sustained, could support the current price levels.
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.
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The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) and the PowerShares DB Oil ETF (NYSEARCA: DBO) are down 27% and 16%, respectively, year-to-date, but those historically struggle in September. For its part XOP, has bee struggling in the wake Tropical Storm Harvey.