Crude Oil is recovering after a few weeks of technical sell-off, and at ~$63 WTI is almost back to the recent highs of $65. Yet, the Energy Sector equities are essentially back to the lows of 2017, when Crude Oil was $45-50. Energy Equities are still underperforming as if Oil is about to revisit to $42. See the chart below. That is very unlikely to happen – supply/demand is tight enough!
During the last 5 years, Energy Equities never had loyal friends among investors – too many false starts. Look at the 5 Year returns generated by the Technology sector +127% (!), while Energy was a total orphan – leaving investors with 12% loses (excluding dividends).
But now Energy Companies are recognizing the value that they can provide by buying unquestionably undervalued shares. So this could be a strong indicator of management conviction in a longer-lasting improvement of fundamentals. Additionally, as Big Energy spends more of its rapidly improving Cash Flow on Buybacks, they would be inherently more disciplined on new capex (less drilling) again, reinforcing tighter fundamentals for Crude Oil.
Conclusion: buy Energy Equities on weakness – you are in a good company – Corporate Houston is on your side!