Oil prices have jumped 15% in the past month, but oil stocks are flat over the same period. It’s a frustrating result for some investors, who are waiting for a shift in sentiment—or perhaps some mergers—to lift the industry.
Oil stocks, however, haven’t done much at all. The SPDR S&P Oil & Gas Exploration & Production ETF is actually down slightly—less than 1%—over the past month. Part of the reason could be the stocks had outpaced oil prices earlier in the year, and oil is just now catching up. But it also appears to reflect expectations for oil and the broader economy. The futures market is predicting a drop-off in oil prices next year, with Brent futures expiring next May trading at $88.
Some investors also see an imbalance in the market, between the U.S. major oil companies and some companies with slightly lower valuations. The second tier of U.S. oil stocks in terms of market value—such as Occidental Petroleum and ConocoPhillips —are trading well below where they were the last time oil prices were at these levels, notes Bill Smead, chief investment officer of Smead Capital Management, which owns oil company shares.
“The much cheaper oil and gas shares are trading at much lower stock prices at comparable oil prices because they are still too tiny for the larger pools of money to consider,” Smead wrote in a note this week.
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