Six weeks ago, we took a deep dive into the absolute and relative performance of the S&P 500's energy sector. At that point, we concluded that, "[w]ith this year's breakdown from the 2016's "bearish flag" pattern, the long-term underperformance of energy stocks could carry over through 2017 and beyond." Updating the relative performance chart from that early May piece suggests that, if anything, the outlook for energy stocks has worsened with the latest drop in oil prices.
July crude oil futures go away today and it will be up to the August crude futures to find a bottom. As U.S. oil production is showing signs of faltering (up only 12,000 barrels in June as opposed to an expectation of 120,000 barrels) and seeing we are past the pain of many shale producers, U.S. rig counts will slow in coming weeks and we may see the count start to fall. Maybe that is why Saudi Arabia is not so worried about the uptick in oil production from Nigeria and Libya.
Crude oil prices continue to be weak as another rise in U.S. oil rig counts overshadows the fact that U.S. production in June is well below what the Energy Information Administration was predicting. The mood is still bleak as Libya says they want to raise production to one million barrels a day despite reports of shipments out of East Libya being halted. Atlantic storms are warning that this hurricane season may be an active one. Crude oil is in a rut and the bears seem to have control even as we are hitting price levels that could put at risk U.S. shale oil output.
The crude oil market had another week of slump and dump as the main event seemed to be the International Energy Agency report about increasing shale output and slack demand for gasoline in the United States that suggests the supply glut may last longer previously thought. For natural gas though we may have hit a bottom after a bullish storage report from the Energy Information Administration and forecasts for hot weather and potential tropical storm activity brewing in the Atlantic Ocean.