US energy equities have been the worst performing sector on a trailing 12-month and 6-month basis (top-left chart), with most names falling below their 200-day moving averages. The top-right chart shows that historically whenever less than 5% of the constituents in the energy sector have been above their 200-day MA, it has usually signalled very oversold conditions from which a rebound can be expected. The only period when this failed was in the 2014 sell-off, when demand and supply fundamentals kept deteriorating. Today, however, the fundamentals for the oil market are much better and should offer some support to equity prices.
The bottom-left chart shows the deviation of crude inventories from the rolling 5-year average, which has historically offered an 18-month lead on oil prices. Whenever inventories build too much, it will elicit a reduction in production from suppliers, which helps to boost prices with a lag. The last chart shows the IEA demand-and-supply forecasts, which shows the current market consensus for oversupply. However, as the bottom pane in the chart shows, historically the IEA often have to revise its forecasts at a later date to match the actual demand and supply conditions, so there is limited information content in the IEA forecasts. The inventory-deviation data has historically done a much better job of forecasting oil markets, and points to upside.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception