Sector that's been hosed for five years finally sees light of day

Oil prices are rising, and that's good news for energy funds.
APR 12, 2018

A surge in oil prices has provided some fuel for long-suffering energy investors. The price of West Texas Intermediate crude oil hit $66.14 a barrel at midday Thursday, closing in on this year's record $66.27 from Jan. 26. Crude hit a low of $26.19 in February 2016. For investors, low oil prices have meant that energy funds have been pumping mud: The average equity energy fund has lost 5.43% a year over the past five years, a period in which the Standard & Poor's 500 stock index averaged a 12.97% annual gain. But there are signs that the long dry spell in energy could be ending. Oil inventories have been falling sharply the past few months — a period when they typically rise, said Kevin Holt, chief investment officer at Invesco. That should continue as the summer driving period approaches, a time of year when the industry normally sees sustained inventory drawdowns. High inventories have continually plagued the industry, keeping prices low. One reason for the drawdowns: Energy companies have realized that overproduction works against them. "We're starting to hear messages from CEOs that they will be managing for profitability rather than growth at any cost," Mr. Holt said. It's not just U.S. oil companies: Saudi officials are targeting $80 crude prices, according to The Houston Chronicle. While that is probably optimistic — the Energy Information Administration forecasts WTI crude at an average $59.37 next year — the outlook for oil prices is considerably better than it has been in the past five years. Another factor in higher oil prices: Growing unease in the Middle East as the U.S. mulls a strike against Syria. Prices for Brent crude have surged to nearly $67 a barrel, the highest since 2014. "Recent rhetoric from the Trump administration inflaming the situation in Syria and pushing a trade war with China is like pouring gasoline on a fire — they certainly put more upward pressure on prices," Patrick DeHaan, head of petroleum analysis at GasBuddy, wrote in his most recent analysis of energy prices. Restrained production and growing demand have translated into higher prices for refined products such as gasoline. The average national price for regular unleaded gasoline is $2.68 a gallon, the highest since July 2015, according to GasBuddy. Higher prices for crude have translated into higher prices in the energy sector. In the past four weeks, as the S&P 500 fell 5.04% and technology mutual funds slid an average 6.3%, energy funds have jumped 3.4%. The top-performing fund, Guinness Atkinson Global Energy (GAGEX), has jumped 6.6% in the past four weeks. "I think oil stocks are pretty inexpensive," Mr. Holt said. "Investors are discounting $50 oil, and these companies will have so much leverage in profits at $60 to $65 a barrel."

Latest News

Merrill to pay $39 million in cash sweep settlement
Merrill to pay $39 million in cash sweep settlement

The financial advice industry has been facing inquiries into its cash sweep programs for years now.

SEC accuses fund advisor of defrauding SpaceX, OpenAI investors
SEC accuses fund advisor of defrauding SpaceX, OpenAI investors

Investor money allegedly went to strip clubs, exotic cars, and landscaping

RIA moves: Savant enters Thousand Oaks as Procyon lands in New Jersey
RIA moves: Savant enters Thousand Oaks as Procyon lands in New Jersey

Procyon adds $415 million in assets under management in New Jersey while Savant picks up a $213 million Southern California planning firm

Beyond sell or inherit: A third exit for appreciated property
Beyond sell or inherit: A third exit for appreciated property

With a growing number of real estate-rich Baby Boomers aging into retirement, some advisors may be failing to consider all the options available for those clients' assets.

AI marketing adoption gap costs financial firms revenue
AI marketing adoption gap costs financial firms revenue

Cornerstone Advisors study reveals compliance bottlenecks stall campaigns weeks after customer opportunities close.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains