• 15 hours PDVSA Booted From Caribbean Terminal Over Unpaid Bills
  • 17 hours Russia Warns Ukraine Against Recovering Oil Off The Coast Of Crimea
  • 19 hours Syrian Rebels Relinquish Control Of Major Gas Field
  • 20 hours Schlumberger Warns Of Moderating Investment In North America
  • 21 hours Oil Prices Set For Weekly Loss As Profit Taking Trumps Mideast Tensions
  • 22 hours Energy Regulators Look To Guard Grid From Cyberattacks
  • 23 hours Mexico Says OPEC Has Not Approached It For Deal Extension
  • 1 day New Video Game Targets Oil Infrastructure
  • 1 day Shell Restarts Bonny Light Exports
  • 1 day Russia’s Rosneft To Take Majority In Kurdish Oil Pipeline
  • 1 day Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 2 days British Utility Companies Brace For Major Reforms
  • 2 days Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 2 days Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 2 days Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 2 days OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 2 days London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 2 days Rosneft Signs $400M Deal With Kurdistan
  • 2 days Kinder Morgan Warns About Trans Mountain Delays
  • 2 days India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 3 days Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 3 days Russia, Saudis Team Up To Boost Fracking Tech
  • 3 days Conflicting News Spurs Doubt On Aramco IPO
  • 3 days Exxon Starts Production At New Refinery In Texas
  • 3 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 4 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 4 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 4 days China To Take 5% Of Rosneft’s Output In New Deal
  • 4 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 4 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 4 days VW Fails To Secure Critical Commodity For EVs
  • 4 days Enbridge Pipeline Expansion Finally Approved
  • 4 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 4 days OPEC Oil Deal Compliance Falls To 86%
  • 5 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 5 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 5 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 5 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 5 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 5 days Aramco Says No Plans To Shelve IPO
Alt Text

Kobe Steel Scandal Could Rattle Nuclear Industry

The scandal at Japan’s Kobe…

Alt Text

Russia And China Continue To Boost Oil Ties

The Russia-China alliance is strengthening…

What Happened To My Energy Portfolio?

What Happened To My Energy Portfolio?

If you have asked yourself the question, “What happened to my energy portfolio?” over the last couple of weeks, I can assure you that you are not alone.

Those of us that are invested in the energy sector got kind of spoiled during the last couple of years, as the market confirmed our belief that energy in general, and U.S. energy in particular, was a good investment.

Oil price chart.
Figure 1: IYE 2 Yrs. Yahoo Finance

The above chart for the iShares U.S. energy ETF (IYE) illustrates the point.  Taken as a whole, the sector has gained over 40 percent in 24 months -- not bad in anybody’s book. The reasons are well known and well publicized, consisting mainly of the boom in hydraulic fracturing and the resulting increases in production of oil and natural gas.

At the same time, alternative energy sectors have benefitted from a reduction in production costs, making them more competitive and allowing many companies, particularly in the solar field, to begin to make profits and start to fulfill their potential. Global demand, meanwhile, continues to climb as the world claws its way out of recession.

It is natural for investors, after a run like this, to begin to get a little nervous.

The very scenario that prompted them to invest has played itself out and the natural worry is that there is nothing left to gain. If you are beginning to feel that way, look at the chart again. It is an obvious observation, but you will notice that it doesn’t go up in a straight line; nothing ever does.

In the energy market, the most popular explanation for the volatility that we see is the fluctuations in the price of oil. Obviously, with an infrastructure that is still largely dependent on oil, that is a factor, but not the only one.

If we add another ETF to the chart for comparative purposes you will see what I mean. The United States Oil Fund (USO) is an ETF designed to reflect price changes in a wide range of oil futures contracts in the U.S. When that is compared to IYE, which reflects stock prices in the broader energy sector, we see that the two often correlate, but sometimes diverge.

 Oil price chart

The obvious conclusion is that there are other factors at play. The very thing that prompted most of us to invest in the first place is probably the most significant of those; production here in the U.S. and elsewhere is increasing.

You don’t need an economics degree to understand that if supply of oil is increasing faster than demand, then the price of oil will fall. That dynamic along with the nature of traded markets, has kept price rises in check even as geopolitical events have resulted in upward pressure, something I pointed out in an earlier article.

Related Article: This Top Oil Producer Hits a 6-Year Export Low

The recent drop in the price of many energy stocks is partly as a result in the drop in the crude oil price that I predicted, but it is also down to more general stock market conditions. The broader market has also seen significant gains over the last couple of years and seems to be taking a breather after hitting new highs. The correction has been seen primarily in so called “momentum” stocks; those that have seen the greatest gains. That definitely applies to the energy sector as a whole.

It is little wonder then that your energy portfolio has taken a hit with oil prices falling and the overall stock market correcting, but you should ask yourself the question “Has that changed the overall energy outlook?” The answer to that question has to be ‘no.’

The U.S. Energy Information Administration’s Energy Outlook 2013 predicted that global demand for energy would increase by 56 percent from 2010 to 2040, and so far there is no sign that that is an exaggeration.

Alternatives and advancing technology may be increasing supply and creating short-term movements in commodity prices, but fundamentally energy is still a rapidly growing sector. The oil price will no doubt fluctuate, but from a long term perspective sheer volume will compensate for any drop and the companies that supply the world with energy look set to continue to prosper.

By Martin Tillier of Oilprice.com




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News