The first quarter of the year is in the books. Following a steep sell-off in December, the S&P 500 returned 13.1% for the quarter, its best quarterly performance in nearly ten years.
According to the Select Sector SPDR exchange-traded funds (ETFs) that divide the S&P 500 into sector index funds, every sector gained in Q1. The energy sector was one of the top-performing sectors for the quarter.
The Energy Select Sector SPDR ETF (XLE) tracks a market-cap-weighted index of 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.
During the first quarter, the XLE generated a total return of 16.2% (including dividends). Every category within the energy sector was a winner in the quarter.
The integrated supermajors returned an average of 13.2% for the quarter. They were led by ExxonMobil’s 19.8% return during the quarter. Only two supermajors — Royal Dutch Shell and Total — returned less than 10% for the quarter.
The 20 largest upstream companies did even better, averaging a 20.3% gain for the quarter. Hess Corporation led the way with a 49.4% gain, while Chesapeake Energy and Devon Energy also saw gains over more than 40%. All of the Top 20 upstream companies registered a gain in the quarter. This segment’s largest company, ConocoPhillips, lagged this quarter with a 7.5% gain. However, over the past 12 months ConocoPhillips is the second-best performer among the Top 20, behind only Hess Corporation.
The midstream sector performed slightly better than the upstream companies. The Top 20 gained 20.7% for the quarter, with 17 of the Top 20 registering double-digit returns. Leading the way was the 38.0% return of EnLink Midstream, but The Williams Companies, Kinder Morgan, and ONEOK weren’t far behind. All gained at least 30% in the first quarter.
The refining segment in the U.S. is basically now just three big companies — Marathon Petroleum, Valero, and Phillips 66 — and then a handful of smaller ones. The best performer among the refiners in Q1 was Valero, with a total return of 14.4%. Given the 30% rise in the price of oil during the first quarter, it isn’t surprising the refiners lagged the other segments of the energy sector. Refiners typically perform worse when oil prices are rising quickly, and do well when oil prices are falling.
With the price of West Texas Intermediate now at $60 per barrel, expect the companies that produce predominantly oil to fare better than those that are focused on natural gas, where prices remain depressed. Natural gas inventories are historically low, but we are headed into the lower demand season where inventories recover.