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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Can Energy Stocks Break Out Of Their Range?

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After last year’s rapid recovery from the depths of the oil market’s plunge, many investors went into 2017 expecting black gold to keep rising in value. So far, it is not working out that way. The energy markets have been sideways at best for most of 2017, and energy firms as a whole are not performing all that well.

The Energy Select Spdr ETF (XLE) encapsulates this issue well – XLE is down to around $72 a share versus north of $78 in December. The ETF is a good broad measure for most of the energy stocks out there. Despite the fact that oil itself has only fallen modestly, many energy firms have underperformed in the market over the last few months.

The underperformance of energy stocks may be because investors expected oil prices to keep rising, and the current price level is still too low for most stocks to make much money. Or it could be that the equity market investors are simply more pessimistic than commodities players are.

Whatever the reason, at least over the last few months, the energy trade is not working out the way many investors had hoped. For now, the easy gains seem to be gone, leaving investors to wonder what they should do from here.

The outlook for oil for the rest of 2017 is decidedly uncertain and the case for further price increases is getting weaker. While OPEC has shown remarkable discipline in its supply cuts, investors must be wondering whether the Cartel is still as relevant as they once were.

The…

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