The third quarter of the year is in the books. The S&P 500 returned 7.7% for the quarter, its best quarterly performance in nearly five years.
The rally was broad-based, according to the Select Sector SPDR exchange-traded funds (ETFs) that divide the S&P 500 into sector index funds. However, performance within the energy sector was mixed.
The Energy Select Sector SPDR ETF (XLE) tracks a market-cap-weighted index of US energy companies in the S&P 500. The XLE represents the stocks of large energy companies from different sub-sectors (e.g., integrated, oil production, equipment services). It is, therefore, a good benchmark for conservative energy investors. Some of the XLE’s biggest holdings are ExxonMobil, Chevron, ConocoPhillips, EOG Resources, and Schlumberger.
Following a second quarter that saw the XLE rise by more than 13%, the third quarter returned a more modest 0.4%, but numbers for individual companies varied greatly within the sector.
The integrated supermajors returned an average of 2.3% for the quarter. They were led by Total’s 7.7% return for the quarter, while Chevron was the laggard with a return of -2.4%.
Among the major upstream companies, companies that are primarily oil producers did well. Marathon Oil and ConocoPhillips led the way with respective returns for the quarter of 11.9% and 11.6%.
Some natural gas producers, on the other hand, saw double-digit losses for the quarter as supply continues to outpace logistics in the Marcellus and Utica shales. EQT was the quarter’s worst upstream natural gas performer with a quarterly decline of 19.8%.
The long-suffering midstream sector saw more than a dozen companies with double-digit returns. Leading the way was the 34.7% return of Dominion Energy Midstream Partners, which is entertaining a buyout offer from its parent Dominion Energy.
The refiners were the only segment in the oil and gas sector to outperform the S&P 500 in Q3, with an average return of 8.3%. The refining sector was led by PBF Energy’s 19.8% return, and Marathon Petroleum’s 14.6% return.
Over the past six months, the XLE has returned 14.6%, versus 10.8% for the S&P 500. With both oil and natural gas moving higher over the past month, the fourth quarter is off to a promising start as well.