Imagine a jigsaw puzzle falls to the floor, and what was a complex but connected picture turns into a mix of pieces with no clear image. Uncertainties and offsetting factors abound. And the pieces are seemingly so disparate that they provide little of the clarity needed to move forward.
A similar set of circumstances appears to have arisen in the E&P sector of late. If E&Ps are trading at attractive levels, few investors are jumping in to seize the opportunity. Rather, potential buyers seem paralyzed by a myriad of externalities: price volatility, geopolitical risks, trade wars, etc.
In early June, the energy sector suffered “massive underperformance,” said a Simmons Energy report. The sell-off was sparked by a negative weekly crude oil inventory report released against a backdrop of trade war fears. The XOP (S&P Oil & Gas Exploration & Production ETF) tumbled to a point “essentially flat with its level in February 2016 when WTI [West Texas Intermediate] was about $26/bbl.”