West Texas Intermediate crude oil prices dipped below $44 per barrel to their lowest levels of 2017 this week, dragging down much of the U.S. energy sector. As the Standard & Poor’s 500 index continues to rip higher, energy stocks are losing their influence over the index.
The Energy Select Sector SPDR exchange-traded fund (ticker: XLE) is down more than 15 percent in 2017. At the same time, energy’s weighting in the S&P 500 has dropped below 6 percent to its lowest level since 2004. Prior to the collapse in oil prices in mid-2014, energy had held a greater that 10 percent weighting in the S&P 500 for about seven years.
This week’s swoon in oil prices represents a 20 percent decline from crude’s 52-week high, officially qualifying the pullback as a bear market. OPEC’s production cut deal last November has done little to eliminate the global crude oil supply glut, as U.S. and other non-OPEC producers have ramped up production. Nigeria and Libya, two OPEC member nations that are exempt from the current agreement, have also increased production.
According to some industry analysts, the worst is yet to come for oil prices.
Again Capital founding partner John Kilduff says oil prices are “most definitely” headed to $40 per barrel. “Not only do we have a struggle with production and an ineffectual OPEC [and] non-OPEC production regime, but you have this overhang again that is not clearing,” he says.
Energy Aspects co-founder and chief oil analyst Amrita Sen says she wouldn’t be surprised to see oil prices headed back into the $30s. “This is like a falling knife right now,” Sen says. “I genuinely haven’t seen sentiment this bad, ever. We have clients emailing saying they have been trading this for 20 or 30 years and they have never seen something like this.”
Even a rare bit of good fundamental news did little to stop oil’s decline this week. On Tuesday, the U.S. Energy Information Administration reported crude inventories declined by 2.7 million barrels, a larger decline than the 2.1 million barrels analysts were expecting.
The XLE ETF’s 15 percent 2017 decline makes…
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