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Energy’s reversal of fortune as oil price slides

The US energy industry has morphed from 2016’s big winner to the bottom of the heap this year in a slide that has accelerated as oil prices fell on Thursday to the lowest level since November.

Energy stocks listed on the S&P 500 index dropped 1.9 per cent on Thursday. The fall brings the sector’s decline this year to 12.1 per cent, the biggest drop of the 11 major groups and a deep under performance compared with a 6.7 per cent year-to-date gain for the benchmark index, and a 23.7 per cent surge last year for the sector.

The latest leg lower came as crude benchmarks on both sides of the Atlantic came under selling pressure amid ongoing concerns about high supplies in North America potentially overshadowing the production freeze that was agreed to between Opec and other major exporters, like Russia.

“For US shale oil production growth, $50 a barrel has proven to be as good as $100 a barrel,” said Olivier Jakob at Petromatrix, an energy consultancy, who added that “oil majors have adapted to the low price environment”.

West Texas Intermediate, the US benchmark, dropped on Thursday by 2.3 per cent to $45.54 a barrel while Brent was off by 2.3 per cent to $48.45 a barrel.

The fall in energy stocks was wide-ranging. EOG Resources, the biggest US shale group, dropped 3.4 per cent to $88.60 while ExxonMobil, the largest US energy company, fell 1.3 per cent to $81.64.

Investors have also been considering first-quarter earnings from energy groups.

With almost 90 per cent of companies having reported, the sector is expected to post combined earnings per share of $3.12, a rebound from a loss of 57 cents a share in the first three months of 2016 when the oil price plunged, according to data from FactSet.

Elsewhere, the broader market wavered in a tight range on Thursday. By markets close, the S&P 500 was 0.1 per cent higher at 2,389.52, the Dow Jones Industrial Average was nearly unchanged at 20,951.47 and the Nasdaq Composite was up nearly 0.1 per cent at 6,075.34.

US Treasuries fell across the curve, following a round of solid economic data and indications that the Federal Reserve was willing to look past the slowdown in economic growth at the start of this year.

The 10-year yield was up 3.6 basis points to 2.354 per cent. Meanwhile, the policy-sensitive two-year yield ticked up 1.2bp to 1.306 per cent.

Yields, which move in the opposite direction of prices, have been climbing for two days, after the Fed said on Wednesday that the weak first-quarter reading on gross domestic product was probably “transitory”, which heightened expectations for a June rate increase.

Investors were also bracing for the US jobs report, which is due on Friday. Wall Street expects the pace of job growth to have ticked up to 190,000 in April from 98,000 the previous month.

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