Oil's well that ends well? I'm heading to an energy conference in Texas this week, and it is striking to reflect on the change in attitudes in just one year. A year ago today, the front-month West Texas Intermediate crude future closed at $33.75 per barrel. Today the front-month contract trades at $53.35, off slightly on the day, and in a narrow range for the past month.
Please don't make the mistake of focusing myopically on the day-to-day movements; oil prices are up 60% since this time last year. That price delta saved an industry. That's not an overstatement, and I am sure my friends who run E&P companies and I will hoist a few glasses of brown liquor this week in Dallas in celebration.
But "whew, we made it" is not a viable strategy in equity investing. The market is a forward-looking, discounting mechanism, and by the time the front-month numbers show the market is "OK," the stocks have already moved.
"I think they're going to make it" is a great strategy when the rest of the market is panicking and ignoring true supply/demand fundamentals, but that was February 2016's trade, not February 2017's.
Permian stalwarts RSP Permian (RSPP) and Diamondback Energy (FANG) have risen 71% and 38%, respectively, in the past year. Further, the remarkable one-year stock price performances of other, smaller independents like Evolution Petroleum (EPM) (+102%) and Sanchez Energy (SN) (+251%) are an indication that much of the easy money has been made in the E&P sector.