Strategy

The Oil Exploration & Production Companies Continue To Decline Too

When oil dip to a low of sub $30 in 2016 and came back from the dead, I assumed all the derivative play would follow, kind of like the tide rises all boats. 

It was only when I started analyzing the relative strength of the SPDR sectors against the SPY, that I notice the energy sector didn’t follow oil and has been on this steady decline. 

This means Wall Street is saying the valuation of energy companies today at $50 barrel oil is lower than the valuation of energy companies years ago at $30 barrel oil.  This is a really big deal if one can connect the dots.  One theme is cheap credit / junk bonds funding the expansion of the shale companies, who are having a hard time paying their debt back…this one theme has enormous consequence to the state economies of Texas, the Dakotas, etc.  However, that’s another post for a different time.

Last month, I spoke about VanEck Vectors® Oil Services ETF (OIH®) which seeks to track the overall performance of U.S.-listed companies involved in oil services to the upstream oil sector, which include oil equipment, oil services, or oil drilling and how the chart suggest OIH is headed lower over time.

The Oil Service Companies Continue To Decline

OIH ONE MONTH AGO

OIH NOW

I have another ETF that I think is worth shorting is the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).  XOP seeks to provide investment results corresponding to the total return performance of an index derived from the oil and gas exploration and production segment of a U.S. total market composite index.  Top holdings include: HollyFrontier Corp, Phillips 66, Marathon Petroleum Corp, Hess Corp, Valero Energy Corp and Marathon Oil Corp.

XOP looks very similar to OIH, with one exception.  XOP breached the monthly demand and is now at all-time lows.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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