Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on July 19, 2019

Bookmark and Share

Energy Sector’s Impact Shrinking

Business

Oil has surged this year and energy stocks have rallied, but interest in the sector continues to shrink day by day. The weighting of energy equities within the S&P 500 is at its lowest level since at least 1990, according to Bloomberg—last standing at a mere 4.87%.

That makes energy the fourth-smallest sector, ahead of only utilities, real estate and materials.

Energy’s fall from grace has been shocking. Eleven years ago, in June 2008, energy’s weighting in the S&P 500 peaked at more than 16%, putting it neck and neck with the weighting of technology. Peak oil, the rise of China and a lack of spare production capacity within OPEC countries were the themes of the times.

Energy topped out with the second-largest weighting in the S&P 500 before the financial crisis took the legs out from under the entire market. But unlike other sectors that have come back strong over the past decade, energy has only limped along begrudgingly.

The largest energy ETF on the market, the $12 billion Energy Select Sector SPDR Fund (XLE), is nearly 40% below its all-time high, as the S&P 500 is close at its highest level ever.

There have certainly been brief moments of strength for the sector, such as in 2014, when triple-digit oil prices pushed XLE to a record, but for the most part, energy is the black sheep of the stock market, overlooked for much trendier and more promising groups such as technology, communication services and health care.

Poor Fundamentals

It’s not hard to understand why energy has underperformed. The fracking revolution in the U.S., which pushed the country’s oil production up 2.5x and the country’s natural gas output up 0.5x since 2008, has inundated the world with supply.

At the same time, a systematic movement to conserve energy and to transition to renewables in response to high fossil fuel prices and climate change concerns slowed demand growth significantly.

All the while, energy companies have thrown good money after bad, taking a growth-at-all-cost mentality, when it clearly wasn’t the prudent thing to do. In 2016, the energy sector’s proclivity toward debt-fueled growth sent many firms into bankruptcy and sunk the entire junk bond market with them.

Ugly Performance

Energy’s woes are reflected in the numbers. Over the past decade, energy ETFs have dramatically underperformed the broader markets.

XLE, for example, is down 26.8%, and up 62.9% over the past five and 10 years, respectively. That compares with a gain of 68.8% and 290.6%, respectively, for the S&P 500 in those same periods.

 

10-Yr Returns For XLE (Blue) & S&P 500 (Orange)

 

Oil and natural gas prices have done even worse than energy equities, and ETFs tied to energy commodities have performed the worst, hobbled by poor performance in the underlying commodities and negative roll yields from contango.

 

Ticker Name YTD Return (%) 5-Yr Return (%) 10-Yr Return (%)
XLE Energy Select SPDR Fund 10.8 -26.8 62.9
AMLP Alerian MLP ETF 20.0 -21.2 25.2
XOP SPDR S&P Oil & Gas Exploration & Production ETF -6.5 -66.4 -16.1
USO United States Oil Fund 21.6 -68.9 -65.7
UNG United States Natural Gas Fund -19.6 -77.3 -95.3
Spot Crude Oil Prices 25.2 -44.9 -10.6
Spot Natural Gas Prices -21.3 -41.5 -36.9
S&P 500 20.4 68.8 290.6

Data measures total returns through July 17, 2019

 

Looking Ahead

Going forward, it’s hard to imagine that the fortunes of the energy sector are going to improve in any sustained way. OPEC’s production cuts over the past three years have merely been a bandage over a market awash with oil.

On the demand side, consumption in developed countries peaked more than a decade ago, though total global demand continues to be carried higher by emerging markets. As electric cars become more prolific, emerging market demand may peak too, marking the official end of the oil era.

Natural gas, which sits near record inflation-adjusted lows due to seemingly limitless supplies, will be of little help in boosting the energy industries’ fortunes. Energy scarcity has been replaced by energy abundance.

Of course, oil and natural gas aren’t going to disappear overnight. They are still two of the most important commodities in the world. The boom/bust cycle hasn’t ended either, and periods of low prices and underinvestment can lead to temporary shortages and higher prices.

When that happens, energy stocks and ETFs could rally, lifting the sector’s weighting in the market briefly. Just don’t expect it to last.

etf.com



6 Comments on "Energy Sector’s Impact Shrinking"

  1. Robert Inget on Fri, 19th Jul 2019 12:44 pm 

    Wussolini, (president trump) can’t make up his mind. Help out his buddies in Saudi Arabia and Texas or pander to his SUV, Pick-up truck driving supporters with cheap gasoline.

    Someone wiser told him, bashing Arabs and Muslims may be a great idea in Oklahoma but doesn’t play so well in Iraq.

    Iran, Russia, China are playing him (US) for the existence of $USD as world’s exchange currency.

    While agreeing with the little article above, with ME tensions fraught, just-in-time delivery still a thing, climate change a factor, ANYthing can and will happen. (count on it)

    As an investor I’ve seen no slacking in NG demand. In point of fact, the days are coming when we consume more NG in Summer
    then Fall and Spring months.
    This coming week-end will test that theory.

    Stay with high dividend NG pipelines. The more Enviros forbid building more, the better it gets for EXISTING, paid for cash cows.

    Forget about
    ponzi shale.

  2. Cloggie on Fri, 19th Jul 2019 1:01 pm 

    Oil & gas industry is sooo 20th century.

    Renewables are the future.

    Mikhail Gorbachev:

    “He who comes too late is punished by life”

    Wise man.

    Don’t miss the boat America.

    https://www.nature.com/articles/d41586-019-02204-4

    “New EU chief makes bold climate pledges”

  3. Robert Inget on Fri, 19th Jul 2019 1:41 pm 

    Cloggie, why doncha hop on an electric aircraft, cross the Atlantic, jump on another all electric
    passenger plane and come visit me on the West Coast.
    Trump welcomes all Whitey Nationalists, as do I. The bad news, I’ll be long dead in 20 years when ’20th Century’ technology becomes entirely pase’.

    Like water, oil, at this point in time, serves serious functions in our lives not easily overlooked.

  4. Cloggie on Sat, 20th Jul 2019 2:57 am 

    “Thomas Friedman Responds to Trump By Detailing Call: You Are Tearing the Country Apart

    https://www.mediaite.com/online/thomas-friedman-responds-to-trump-by-detailing-call-you-are-tearing-the-country-apart/

    At least Friedman accepts the distinct possibility that the US borders will look very different, very soon. In that he is right. He is wrong in blaming Trump for that. He should look to his own tribe for creating this situation in the first place.

    Here is documented how Friedman’s tribe for more than a century had pushed for the US to open its borders for non-European immigration.

    https://tinyurl.com/y6gg3wma

    In 1965 they could finally score their majestic victory:

    http://www.lbjlibrary.org/assets/uploads/lbj/Press/a1421-30a_med.jpg

    LBJ, who replaced JFK after his murder, signing the landmark immigration act of 1965. It changed US demographics from 90% white to 60% today and counting (downwards).

    “Racism” is the battle cry of the US empire. It is the natural battle cry of a country that seeks to found a world state without borders (“NWO”, “globalism”), owned by a few, mostly kosher, oligarch plutocrats, who want it all. And 1945-Europe was the first victim.

    In 2017 they admitted it is not going to happen, Putin, Xi and now Trump were too much:

    https://www.bloomberg.com/opinion/articles/2017-09-27/america-s-new-world-order-is-officially-dead

    It is not quite clear who invented the word, but already around 1930 the word was used in his writings by the very kosher and extremely successful revolutionary Leon Trotsky, who already sensed he had an extra tool in his world-revolutionary toolbox, apart from economic egalitarianism: namely racial/religious egalitarianism.

    Economic communism never gained a foothold in capitalism champ USA. Racial egalitarianism in contrast very much so… because the US is a “nation” of immigrants and hence has a weak sense of ethnic identity and little defense in warding off non-whites, as it was difficult enough to integrate all these white Italians, Irish, Polish, etc. with the original colonizers of western European stock.

    Now finally the “racist” cat is out of the bag and won’t be put in again. The country from now on is on a descending slope towards a Yugoslavia scenario and the only interesting question is who gets what.

    As a consequence the future of US vassals in Europe, like Angela Merkel, looks very bleak indeed. They are going to face a “1989” of their own.

    The West is crashing down and that is terribly good news. “Terribly”, because whitey seems to have a (separate) future after all, but will have to go through a maelstrom of violence until a new, no doubt race-based order, will have been achieved. Think of British Tory grand Enoch Powell and his “rivers of blood” (1968). Half a century later it is finally going to happen.

    Mr Friedman is smart enough to know what is coming. His fellow tribes Paul Krugman, also from the JYT, gloated as late as 2014 that whitey was finished in America:

    https://documents1940.wordpress.com/2017/09/27/paul-krugman-white-americans-are-losing-their-country/

    Although he was aware that a last white gasp could happen; he was thinking about Ted Cruz. It became blockbuster Donald J. Trump, who volunteered to not only blow up the NWO, but also Anglosphere and eventually even the US itself.

    Paul Krugman ain’t gloating no more about white demise, 5 years later:

    https://documents1940.wordpress.com/2019/01/07/the-good-news-zog-is-dying/

    It is now obvious that Trump at least ACTS like a white nationalist (although he publicly denies to have a “single racist bone in his body”) and that Putin is indeed his example: get rid of empire, also get rid of the USSR and carry on as a mild nationalist in a Russian-majority state.

    Won’t be different with the US: the US will be downsized until a ca. 90% white majority will be achieved on a reduced territory, that is the Heartland, probably largely coinciding with the Mississippi basin.

  5. Cloggie on Sat, 20th Jul 2019 4:45 am 

    Turkish-Iranian cooperation? Together they can take over the Middle East, over the dead body of Saudi-Arabia (Russia and China would not object):

    https://www.dailysabah.com/op-ed/2019/07/19/co-opetition-in-turkey-iran-relations

    “Co-opetition in Turkey-Iran relations”

    https://www.washingtoninstitute.org/fikraforum/view/irans-high-strategic-value-for-turkey

    “Iran’s High Strategic Value for Turkey”

    All it takes is a “Churchillian note” about the division of Europe, c.q. the Middle East:

    https://en.wikipedia.org/wiki/Percentages_agreement

    https://foreignpolicy.com/2019/07/18/security-brief-plus-after-rupture-with-u-s-turkey-looks-to-russia-for-fighter-jets/

    “After Rupture with U.S., Turkey Looks to Russia for Fighter Jets”

    https://www.brookings.edu/blog/order-from-chaos/2019/07/15/why-is-turkey-betting-on-russia/

    “Why is Turkey betting on Russia?”

    https://news.yahoo.com/pentagon-nominee-argues-diplomatic-approach-142112899.html

    “Pentagon nominee regrets Turkey’s ‘drift’ from West”

  6. Cloggie on Tue, 23rd Jul 2019 2:57 pm 

    GE-owned, but French-build 12 MW nacelle shipped for the Netherlands:

    https://cleantechnica.com/files/2019/07/ge_haliade-x_nacelle_4_0.jpg

    Meet the Halliade-X, the new standard in wind engineering.

    This is how it will look like, once installed in Rotterdam:

    https://deepresource.wordpress.com/2019/01/18/ges-12-mw-haliade-x-to-be-installed-in-rotterdam/

Leave a Reply

Your email address will not be published. Required fields are marked *