US energy stocks are on track to post the worst first half of a year since at least 1990 after mounting concerns about swelling oil supplies sent crude tumbling into a bear market.
The S&P 500 energy sector has shed 15 per cent in 2017, badly underperforming the broader benchmark that has jumped 8.8 per cent over the period.
The fall has stripped the sector of about
The weak performance this year by the energy industry marks a reversal from 2016 when it led the market higher with a 23.7 per cent surge.
It has come as the price of US crude oil has plummeted 20.9 per cent since its recent high on
"The main overhang on oil sentiment continues to be resilient US production," said
In fact, domestic output hit 9.35m barrels per day last week, according to energy department data, marking the highest level since
The concern among analysts is that a renewal in drilling by American shale groups will counteract the effects of the agreement by Opec, the oil cartel and other major producers like
Oil and gas exploration companies have faced some of the most intense selling.
Energy majors
The American energy industry's debt has also taken a hit with anxiety rising over "junk bonds" that have ratings below investment grade.
The premium investors demand to hold the debt of speculative-rated energy groups rose to 5.45 percentage points on Wednesday from 5.24 the previous day and 4.97 on Monday, according to
Spreads, which measure the difference in yield between corporate bonds and Treasuries of the same duration, have jumped by 1.56 percentage points from the lows of the year marked in late January.
That suggests the debt, which had been relatively immune to oil price fall, has begun to take a hit as well.
Lower rated groups have tended to face the most intense pressure since declines in their revenues sparked by lower oil prices have a more immediate impact on their ability to service debt.
Notably, however, risk premiums remain far off their peaks from early last year when US crude prices fell as low as
The broader junk bond space has also remained relatively insulated from the rising anxiety over the energy industry with spreads on the BofA Merrill high-yield index pushing just slightly higher to 3.85pp from lows in May of 3.55pp.
Still,
Looking at the markets more broadly on the day, the S&P 500 and Dow Jones Industrial Average fell less than 0.1 per cent to 2,434.50 and 21,397.29, respectively. The Nasdaq Composite was nearly unchanged at 6,236.69.
Copyright The Financial Times Limited 2017
