Lack of Confidence Evident in Energy Sector
From the Washington Post:
The most striking aspect of the energy sector in recent weeks has been an all-round lack of confidence.
Relative to the wider market, the E&P sector's performance this month looks even worse given that the S&P 500 is essentially flat.
Clearly, crude oil hovering around $50 a barrel doesn't represent a return to the good old days.
Equally, though, it isn't at the disastrous levels of a year ago. The futures "strip" -- the average price for the next 12 months -- has recovered from the sell-off in March and trades around the same level it jumped to in the aftermath of the OPEC supply-cut announcement at the end of November.
Moreover, many E&P companies have already taken the opportunity to lock in prices at around that level via hedges, according to data from Bloomberg Intelligence, providing some protection against any weaker prices ahead. Meanwhile, rig counts, payrolls and services providers such as Halliburton Co. are sending strong signals of a rebound in U.S. onshore drilling.
When earnings season for E&P firms kicks off next week, the messaging, at least, will be pretty bullish in terms of growth plans (and that is what tends to count in this sector). Questions about cost inflation, the shadow hanging over the industry for the past year, will likely be less urgent than on prior calls, given that oilfield-services stocks are down almost as much as their E&P counterparts. So why so glum?Click here to read this entire article.
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