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Oct. 21, 2018, 8:29 a.m. EDT

With crude around $70, it’s time to sell your oil stocks

From fracking stocks to Big Oil, there are few signs to encourage investors

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By Jeff Reeves, MarketWatch


AFP/Getty Images
Pump jacks and a gas flare near Williston, N.D.

The energy sector has been whipsawed by headlines lately, and many investors can’t decide whether to buy or sell oil stocks.

When oil raced up to a new 52-week high of more than $76 to start October, many thought things looked great. Then as U.S. oil supplies rose and as OPEC production rose, things didn’t look so hot.

And of course, there have also been challenges in the Middle East, including the onset of U.S. sanctions against Iran and the disturbing disappearance of a Saudi journalist, that have injected further uncertainty into the oil market.

Oh yeah, the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.60% has been a bit choppy in general, in case you didn’t notice. The Energy Select Sector SPDR ETF /zigman2/quotes/206420077/composite XLE -0.07%   is essentially flat on the year.

So what’s the score? Should you be shopping for oil stocks now amid comparatively high crude prices? Or should investors be worried that recent headlines and marketwide volatility will take their toll on energy stocks?

A look at the details, unfortunately, show it’s likely the latter.

Fracking stocks

While the last few years have certainly provided plenty of profits to investors in fracking stocks, the most recent rally in crude oil prices has perhaps surprisingly left many investors flat.

Sure, there was a dramatic rally in 2016 for many energy stocks after crude bottomed at a low of under $27 at the beginning of the year and ran up to the high $50s by December; names like Concho Resources /zigman2/quotes/208942254/composite CXO +0.28% , Diamondback Energy /zigman2/quotes/201200230/composite FANG -0.30% finished 2016 up more than 60% from their January lows.

In late 2017, we saw another nice run for many fracking names in anticipation of even higher oil prices. In the last three months of the year, Diamondback and Concho both added about 40% in 90 days.

But the rapid run-up in these stocks has seemed to give way to consolidation in 2018, suggesting higher oil is already priced in. Both Diamondback and Concho are slightly in the red year-to-date despite all the talk of higher oil prices and potential inflation.

There are some exceptions, of course, that have delivered profits. The share price of shale oil player Whiting Petroleum /zigman2/quotes/204602363/composite WLL -0.95% has more than doubled in the last year, in part thanks to operational improvements. But the stock is still down a staggering 85% from its 2014 highs, so let’s not pretend Wall Street’s turnaround interest in Whiting is indicative of sector-wide bullishness.

Service stocks

Oil service stocks have also been struggling lately, chief among them Haliburton /zigman2/quotes/210488727/composite HAL -1.20%  and Schlumberger /zigman2/quotes/201012972/composite SLB -4.21% . Both these names are down more than 14% since Jan. 1.

That may sound counterintuitive, since higher oil prices would lead some to think Big Oil would be readily investing in bringing their fields online. But many energy companies seem gun-shy about ramping up production too quickly right now. While the closely watched Baker Hughes rig count is slightly higher than it was a year ago, total active U.S. rigs remain under 1,100 — down considerably from a peak of nearly 1,600 right before the oil glut and resulting price crash of 2015.

/zigman2/quotes/210599714/realtime
US : S&P US
3,298.46
+51.87 +1.60%
Volume: 2.18B
Sept. 25, 2020 5:06p
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/zigman2/quotes/206420077/composite
US : U.S.: NYSE Arca
$ 30.18
-0.02 -0.07%
Volume: 27.56M
Sept. 25, 2020 4:00p
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/zigman2/quotes/208942254/composite
US : U.S.: NYSE
$ 43.71
+0.12 +0.28%
Volume: 1.75M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
1.83%
Market Cap
$8.60 billion
Rev. per Employee
$2.76M
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/zigman2/quotes/201200230/composite
US : U.S.: Nasdaq
$ 29.90
-0.09 -0.30%
Volume: 3.25M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
5.02%
Market Cap
$4.72 billion
Rev. per Employee
$3.06M
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/zigman2/quotes/204602363/composite
US : U.S.: NYSE
$ 17.79
-0.17 -0.95%
Volume: 464,864
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$677.80 million
Rev. per Employee
$2.76M
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/zigman2/quotes/210488727/composite
US : U.S.: NYSE
$ 12.37
-0.15 -1.20%
Volume: 18.48M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
1.46%
Market Cap
$10.87 billion
Rev. per Employee
$399,917
loading...
/zigman2/quotes/201012972/composite
US : U.S.: NYSE
$ 15.92
-0.70 -4.21%
Volume: 16.29M
Sept. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
3.14%
Market Cap
$22.10 billion
Rev. per Employee
$328,150
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