Wall Street Reconsidering Energy Stocks

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The energy sector has been on a volatile roller-coaster ride for the past nine months or so. With collapsing oil prices, some energy stocks have cratered while other energy stocks have soared. It all depends on which industry group those energy stocks are in.

Let’s take a look at the performance of energy stocks in the following two industry groups: oil and gas drilling and exploration, and oil and gas refining and marketing.

Oil & Gas Drilling & Exploration

The Oil & Gas Drilling & Exploration industry group has been the hardest hit group of the two, as companies have cut back on new oil production thanks to the oil supply glut we’re experiencing.

Wall Street Reconsidering Energy Stocks
Source: U.S. Energy Information Administration

We’ve seen SeaDrill Ltd (NYSE:SDRL), Transocean LTD (NYSE:RIG) and Petroleo Brasileiro Patrobras SA (NYSE:PBR) lose 49.10%, 38.67% and 47.38% of their value during the past six months, respectively, as seen in the charts below:

SeaDrill Ltd (NYSE:SDRL) Wall Street Reconsidering Energy Stocks

SeaDrill Ltd (NYSE:SDRL): Chart courtesy of eSignal

 Transocean LTD (NYSE:RIG) Wall Street Reconsidering Energy Stocks

Transocean LTD (NYSE:RIG): Chart courtesy of eSignal

Petroleo Brasileiro Patrobras SA (NYSE:PBR): Wall Street Reconsidering Energy Stocks

Petroleo Brasileiro Patrobras SA (NYSE:PBR): Chart courtesy of eSignal

It’s tough to make money when you are forced to cut back production.

Oil & Gas Refining & Marketing

On the other hand, the Oil & Gas Refining & Marketing industry group has been doing quite well, thanks to the widening “crack spread.”

The crack spread is the price difference between the value of a barrel of crude oil and the refined products — such as gasoline and heating oil — that can be produced from that barrel of crude oil. This spread is a strong indicator of how profitable oil refiners are going to be. The wider the spread, the stronger the margins for the refiners and the more profitable they will be. The narrower the spread, the weaker the margins for the refiners and the less profitable they will be.

As you can see in in the chart below, the crack spread widened significantly in early 2015.

Wall Street Reconsidering Energy Stocks
Source: Value Forum

This was a boon for companies like Valero Energy Corporation (NYSE:VLO), Marathon Petroleum Corp (NYSE:MPC) and Tesoro Corporation (NYSE:TSO), which are up 28.3%, 21.4% and 35.4% during the past six months, respectively.

Valero Energy Corporation (NYSE:VLO) Wall Street Reconsidering Energy Stocks

Valero Energy Corporation (NYSE:VLO): Chart courtesy of eSignal

Marathon Petroleum Corp (NYSE:MPC) Wall Street Reconsidering Energy Stocks

Marathon Petroleum Corp (NYSE:MPC): Chart courtesy of eSignal

Tesoro Corporation (NYSE:TSO) Wall Street Reconsidering Energy Stocks

Tesoro Corporation (NYSE:TSO): Chart courtesy of eSignal

It’s been good to be a refiner during the past few months. However, the crack spread is starting to narrow once more, which means refiners may not be so hot moving forward.

On the other hand, Wall Street appears to be reconsidering its bearish stance on oil-drilling companies. Maybe, just maybe, traders reacted too harshly and pushed these stocks down too far.

Looking at the price action from the past few weeks, it looks like traders are jumping back into these “oversold” stocks.

If the market is able to continue its bullish bounce, it may be time to start looking at stocks in industry groups that have swung too far into negative territory as potential bullish candidates.

InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news. Get in on the next SlingShot Trader trade and get 1 free month today by clicking here.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/wall-street-reconsidering-energy-stocks/.

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