Market Insights

After a huge bounce last quarter, energy is struggling again as coronavirus keeps spreading.

The SPDR Energy ETF (XLE) fell 9 percent between June 30 and Thursday’s close. That makes it the worst-performing sector this quarter by a huge margin. It also contrasts with a gain of almost 2 percent for the S&P 500.

Traders may soon brace for more downside after U.S. cases of coronavirus rose by a record 60,565 yesterday. That could force more states to pause their reopening plans, reducing travel and an economic rebound.

Both could hurt demand for petroleum products. It comes at a potentially bearish time because stockpiles of unused crude oil have climbed toward their highest levels ever — despite the least drilling activity on record.

Still, crude oil futures (@CL) have drifted sideways for more than a month. Their range has narrowed recently, squeezing their Bollinger Bandwidth to the tightest since the crash began in late February. That may signal a move is coming soon.

Crude prices have held so far, but yesterday XLE closed at its lowest level since April 22. It’s trying to hold a level from mid-May, but traders may still want to keep an eye on it. A breakdown from here could start to get more attention and potentially drag @CL lower as well.

One final thing: Newer groups like electric cars and solar energy have surged despite cheap oil. That may reflect a deeper, structural shift away from fossil fuels: another potential risk for XLE and its member stocks.