New York, NY – The energy sector faced challenges in the third quarter of the year, with the MSCI U.S. IMI Energy 25/50 Index reporting a return of -3.21%. This was in stark contrast to the S&P 500 index, which saw a positive return of 5.89%. Despite the broad-market index benefiting from factors like resilient corporate profits and the Federal Reserve’s interest rate cuts, energy stocks struggled due to declining crude oil prices. West Texas Intermediate crude oil prices fell by approximately 17% to around $68 per barrel during the quarter.
The shift towards global monetary easing gained momentum as the Federal Reserve cut its benchmark federal funds rate by 0.50 percentage points. This move came after a historic hiking cycle that began in March 2022 to combat high inflation. Alongside these developments, energy companies faced challenges from fluctuating energy prices, supply and demand dynamics, as well as government regulations.
In terms of performance, the fund experienced a return of -5.13% in the third quarter, underperforming both the MSCI U.S. IMI Energy 25/50 Index and the S&P 500 index. Integrated oil & gas and oil & gas exploration & production industries were among the key detractors from the fund’s performance during the quarter.
Looking ahead, the outlook for oil prices remains positive, with oil prices expected to range between $70 to $90 per barrel. Key drivers include rising global demand, production restraint by OPEC members, and geopolitical risks. However, U.S. natural gas prices are likely to face pressure from domestic production and other factors.
Rising geopolitical tensions in the Middle East could impact oil and gas prices, while weaker global economic growth may lead to decreased demand. Despite short-term challenges, long-term investments are expected to meet growing demand for oil and gas in the future. The fund remains overweight in integrated oil and gas stocks, with a focus on Exxon Mobil and Cenovus Energy. Additionally, investments in energy equipment & services stocks are poised to benefit from increased capital spending in the industry.
