A Tale of Two Energy Tapes

Crude oil has rallied smartly over the last five days.  As a proxy, the iPath Crude etf, OIL, is up ~11% in that period.  There is a view that oil could have meaningful upside as the re-flation trade continues to play out, especially with a weakening dollar.  We manifest our global macro calls in our etf portfolio, but for those who cannot play etfs, or the commodities directly, we want to highlight an important data point as it relates to the energy sector.  Specifically, in a rising oil and natural gas environment the largest capitalization companies may be laggards.


We saw this in spades over the last five days.  As outlined in the chart below, the etf OIL was up 10.9% and the Energy SP500 etf, XLE, was up 8.8% in this time period.  Within the XLE, there was a major bifurcation between the two largest companies and the eight next largest companies.


The two largest companies in the XLE are Exxon Mobil (XOM) and Chevron (COP).  Together these two companies comprise 37% of the XLE.  Over the past five days, these two stocks were up 2.6% and 2.8% respectively, dramatically underperforming both oil and the XLE.  The next eight largest companies comprise 28.3% and over that same period were up 11.2% on average and outperformed both the XLE and the commodities.


While the next eight largest companies are a mix of oil, natural gas, and services (Schlumberger), this is a dynamic that will likely continue.  The largest oil companies, such XOM and COP, while cheap with healthy cash flows, have a very difficult time adding reserves that will enable them to grow their production at a high rate.  Thus, in a rising oil environment, when scarcity of oil begins to get priced into the equities, the super capitalization companies could dramatically underperform, as they have in the last five days.


Daryl G. Jones

Managing Director


A Tale of Two Energy Tapes - crude

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more