The decline in energy-related commodities has been as swift as the latter stages of the historic run-up that occurred earlier in the year. But a look at companies in that sector suggests that the decline may be nearing its end, at least for now.
Bianco Research analyst Howard Simons notes that an index of exploration and production companies has displayed a bit of strength in the last several days even as the prices of crude oil and natural gas continue to sink. Such a judgment is built on shaky ground — it has taken place, after all, over just two weeks — but the rebound in these stocks “may be a sign the violent slide in the two major energy commodities is drawing to a close.”
Headed into Monday’s action, the price of crude oil had declined by 17% since October 10, falling to $64.15. Crude was lower Monday, falling to $62.52 a barrel. Natural gas, meanwhile, was trading at $6.123 per million British thermal units, down from $6.535 on Oct. 10, for a decline of 6.3%.
But major exploration and production companies involved in this area have rebounded from the middle of the month. While the rest of the market swoons, Chesapeake Energy has gained 24% headed into Monday’s action; Devon Energy rose 16%, and Noble Drilling was up 27%.
Analysts at Oppenheimer noted recently that the selloff in those shares through the middle of October “underscores the impact of program trading, which exacerbated the uncertainty that engulfed the financial markets in defiance of reason or rational judgment.” They raised their opinion on the sector on October 20.
