(Repeats story that appeared earlier, no changes)
By Jessica Resnick-Ault and Lewis Krauskopf
NEW YORK, March 5 The energy sector is the stock
market's dud so far in 2017 after a banner performance in 2016,
and the rest of the year may also be rocky for investors due to
the unclear path for crude oil prices.
Energy outdid all other sectors last year, up nearly 24
percent thanks to a late-year rally on anticipation that
impending production cuts from major oil producers would lift
crude prices and after the election of Donald Trump as U.S.
president spurred investor hopes for industry-friendly policies.
However, energy shares have been weak after peaking in
mid-December, and are the worst-performing of the Standard &
Poor's 11 stock sectors in 2017. Oil producers have been the
poorest among energy sub-industries, due to doubts about the
demand outlook and an unexpectedly high level of crude and
finished product inventories.
In 2017, energy is down 5 percent, compared with a 6
percent climb for the overall S&P 500. U.S. oil producer
shares rallied in late November along with commodity prices. But
they have pared gains this year as a Nov. 30 agreement by the
Organization of the Petroleum Exporting Countries to cut
production has so far failed to quell fears of oversupply and
lift crude prices beyond a tight $5 a barrel range.
Since not all oil companies perform the same task, not all
shares are created equal. Analysts said production companies,
particularly those operating in U.S. shale regions like Texas's
Permian Basin, where drillers have been rapidly adding to rig
counts, may be best positioned for gains.
They do carry risk, as shale producers can get more volatile
if prices move more rapidly.
"There's a lot of worry about what the U.S. supply picture
will look like, and there's a lot of worries about the OPEC
cuts," said Vikas Dwivedi, global oil and gas strategist at
Macquarie Group in Houston. "We think you're going to get good
inventory numbers, which will propel a rally in the commodities,
and take the exploration and production companies higher."
Investors have already beefed up bets on the sector - about
$263 million has flowed into U.S.-listed energy mutual and
exchange-traded funds in 2017 through February, according to
Lipper data. The Energy Sector Select SPDR Fund, which
has about $17.6 billion in assets, has attracted $400 million of
new investment, according to Lipper data.
Companies like Exxon Mobil Corp and Chevron Corp
may see profits rise as the economy strengthens and oil
prices increase. Increased power demand and defense spending -
the defense sector is a big energy consumer - could also propel
demand. The chief executives of both companies will be
presenting at this week's closely watched CERAweek conference in
Shares of oil majors pay a dividend yield, a benefit for
times when oil prices are range-bound, said Christian Ledoux,
senior portfolio manager at South Texas Money Management in San
Antonio. "We think that the other categories of energy provide
just too much risk at this point," he said.
Investors are also looking at the potential effect from
Trump's policies. Since the election, refiners are up more than
9.5 percent, while oil producers have
gained less than 2 percent, the weakest energy sub-sector.
Macquarie's Dwivedi said some independent refiners may
benefit from expected changes to renewable fuel standards, while
others may see profits hurt if a border adjustment tax is
passed. Since the election, Valero Energy, which
supports changes to renewable fuel blending rules, is up 14
Refiners overall saw margins pinched in 2016 after
overproduction of product early in the year. Product inventories
for gasoline and distillates are still considered high. That
will hurt margins, especially if crude prices rise with
(Editing by David Gregorio)