A quick review of West Texas Intermediate (WTI) crude oil’s spot market price over the past 12 months reveals a quiet market, with the price per barrel starting and finishing in the upper-$40 range. In reality, it was an extremely volatile period with spot WTI falling below $30 in January 2016 before rallying to over $50 by June.
Last last week, for instance, it traded near $50.60 on Thursday but ended the week just under $50. Prices have been influenced by declining inventory and OPEC’s recent move to reduce supply.
Performances among equity-energy funds tracked by Morningstar through Sept. 30 reflect the pattern of gyrations in the sector.
The one-year average return earned by investors who rode out the price swings was 14.5%. But investors buying in early-2016 had a year-to-date return of 20.3%, reflecting their savvy market timing (or good luck) in catching the bottom.
Price swings have moderated since mid-summer, although the markets are still subject to volatility spikes from speculation about OPEC, supply disruptions in politically unstable countries and other causes.
Given the run-up in prices since the early-year lows, should investors consider getting into energy funds, and if so, which sectors appear to offer the best prospects?
Not Too Late
Scott Colyer, CEO and chief investment officer of Advisors Asset Management in Monument, Colorado, views the recent price volatility as the bottoming of a long-duration commodity cycle.
Lower prices lead to reduced production and investment, which in turn causes a drawdown of existing stocks. That tightening moves prices higher, and he believes the market has reached that point with crude oil.