Bloodbath in oil & gas stocks could continue

Saturday, January 5, 2019
By Paul Martin
5 Jan, 2019

For much of 2018, investors probably thought they had a strong bet in the energy complex. But that bet badly turned sour in the final 60 days of the year.

The spot energy index in the S&P Goldman Sachs Commodity Index (GSCI) gained 25 percent between January and October. But with the books closed on 2018, the index ended the year down 21 percent. The S&P GSCI “is a weighted average of commodity prices intended to reflect global commodity production quantities and futures contracts’ trading volumes,” according to the EIA. Energy was not the only commodities sub-sector in the GSCI index posting losses in 2018, just the worst-performing one.

Of course, that is largely just a reflection of the sharp decline in oil prices. But the share prices of most oil and gas companies are also largely based on oil price movements. So, the steep slide in oil prices in the final two months of 2018 led to disaster for investors in energy stocks.

“The stock market went to hell in December. And when it got there, it found that the energy sector had already moved in, signed a lease and decorated the place,” Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA), wrote in a commentary.

The energy sector was at or near the bottom of the S&P 500 for the second year in a row, Sanzillo pointed out. And that was true even within segments of the oil and gas industry. For instance, companies specializing in hydraulic fracturing fell by 30 percent, while oil and gas supply companies lost 40 percent. “The fracking boom has produced a lot of oil and gas, but not much profit,” Sanzillo argued.

Looking forward, there are even larger hurdles, especially in the medium- to long-term. Oil demand growth is flat in developed countries and slowing beginning to slow in China and elsewhere. The EV revolution is just getting started.

The Rest…HERE

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