Energy Stocks Late-Year Slump Brings Worst Month Since 2012

  • Seven stocks post monthly declines exceeding 20 percent
  • Nearly half of energy group's 2015 losses came in December

A one-week rally wasn’t enough to rehabilitate shares of companies in the oil patch.

A week after rebounding oil prices pushed energy shares to their biggest rally since October, renewed selling in crude pushed the group to its biggest monthly decline since May 2012. Only two companies -- Columbia Pipeline Group and Consol Energy Inc. -- in the 40-member gauge posted a gain this month, with seven tumbling more than 20 percent. Even after a 4.6 percent surge last week, the group’s 10 percent December rout capped its worst year since 2008.

Crude plunged 11 percent in the month, its biggest two-year slide ever amid waning demand from China and Europe, while fresh data signaled a spike in American stockpiles. Selling in energy shares -- the most beaten-down group in the Standard & Poor’s 500 Index for two straight years -- may also have accelerated at the end of the year as investors unload loss-making trades for tax purposes.

Oil has “had a material pullback,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “In December, you’re likely to see people exiting positions of names that have been losing stocks this year and just about anything in energy qualifies.”

Kinder Morgan Inc. tumbled 38 percent this month, more than half of its year-to-date losses. Meanwhile, Williams Cos. Inc. slipped 30 percent, hitting a four-year low on Dec. 18 amid its worst monthly decline since July 2002. The five worst performers in the S&P 500 this month were energy stocks.

Data showing expanding American stockpiles added to the country’s biggest-ever annual growth in inventories, exacerbating a global glut that has sent oil prices lower by about 65 percent since June 2014. Eight energy producers in the S&P 500 posted stock-price losses in excess of 50 percent this year as profit in the industry dries up, raising concern that companies won’t be able to stay solvent.

The rally in energy stocks last week came as crude rebounded more than 9 percent from a six-year low, fueling speculation the commodity’s plunge had ended. That sentiment helped steady the S&P 500 from a tailspin started by the Federal Reserve’s first interest-rate increase in nearly a decade.

“There’s no question about it, oil’s probably been the most important thing for the month of December as far as equities go,” said Andrew Brenner, head of international fixed income for National Alliance Capital Markets in New York. “There’s a lot of tax-loss selling right before year-end. When you have a company that hasn’t been doing well and you’ve got a loss on it for the year, you’re going to sell some of these losses even though you still like the companies.”

While that “double whammy” has dragged down these stocks this year, it could reverse in the new year, Brenner said. A self-described contrarian, he recommends investors buy “all these things that are getting crushed” -- including oil. “That’s where I think you can make money in 2016.”

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