Is the Oil and Gas Industry the Worst-Performing Sector in 2024? #IndustryFinance
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We recently published a list of 10 Worst-Performing Industries in 2024. In this article, we are going to take a look at where oil and gas industry stands against other worst-performing industries in 2024.
Several market-influencing factors are at play in 2024. These include policy easing by central banks around the world, falling commodity prices and multiple tech subindustries exiting the 2020-22 hype mania.
Other factors include the consistently growing investor/consumer focus on sustainability, slowing economic growth in China and a volatile geopolitical environment in Europe and the Middle East. These factors have put several industries on a path to recovery, while others on a long-term decline, yet others still in uncharted waters.
The fed cut rates in September by 50 basis points, which was welcomed by Wall Street as a positive signal towards a much anticipated soft landing. Following the cut, the broad market jumped 1.7%, on average, in one of its best days in the year, surpassing its last all-time high in July.
Some analysts, like Rob Rowe, expect the Fed to cut rates by at-least 25 basis points at each meeting through the rest of the year, further boosting investor confidence. The policy easing is expected to boost industries struggling due to a challenging borrowing environment.
However, some industries are likely to keep struggling due to their dependence on commodity markets. These industries are likely to suffer from overcapacity and weak demand. Commodity prices are sensitive to growth in China, whose economy grew 5.2% in 2023. Adjusted for low activity in 2022 due to lockdowns in the country, the 2023 growth was actually slow, and it is expected to slow further to 4.8% in 2024 and 4.5% in 2025, based on IMF forecasts.
On the other hand, industries that have a negative impact on the environment are on a long-term decline in their core business. This is leading to growing investments by the companies in these industries in recycling, carbon-capture technologies and renewable energy.
A challenging borrowing environment hasn’t stopped some industries from posting high gains in 2024. Two of the prominent ones include Semiconductors and Precious Metals. Based on the ETFs exposed to the industries, they’ve gained 45% and 37% YTD, respectively.
The demand for semiconductors is mostly driven by growth in AI, which, unlike many tech subindustries, is the only one that survived the 2020-22 hype mania. The industry posted trailing-12 month gains of 54%, based on a Roundhill Investments ETF we tracked exposed to companies at the bleeding edge of AI research in both hardware and software.
On the other hand, precious metals have outperformed the broader market so far owing to fiscal instability, geopolitical volatility and de-dollarization, even as the luxury market suffers onslaught.
Also ReadTop 20 Fastest-Growing Industries in the World in the Next 5 Years and 16 Most Profitable Industries in the US in 2024.
For our list of the worst-performing industries in 2024, we ranked them on the basis of YTD returns of ETFs and in some cases, of stock indices exposed to the respective industries, as of October 25.
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Is the Oil and Gas Industry the Worst-Performing Sector in 2024?
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Overall: -4%
iShares U.S Oil & Gas Exploration & Production ETF -0.98%
iShares Oil & Gas Exploration & Production ETF +4.3%
SPDR Oil & Gas Equipment and Services ETF (NYSE:XES): -7%
Several subindustries in the oil & gas industry had negative YTD returns, with natural gas getting hit the hardest. The Ultra Bloomberg Natural Gas Index Fund (NYSE:BOIL) was down 66.7% year-to-date. The US oil & gas did worse than the global industry, underperforming the latter by 5.28% based on the performance of Blackrock’s U.S Oil & Gas Exploration & Production ETF versus its global Oil & Gas Exploration & Production ETF.
The oil and gas equipment and services industry naturally followed, with the US-exposed SPDR Oil & Gas Equipment & Services ETF (NYSE:XES) falling 7% year-to-date. This is based on the ETFs exposed to these industries. The natural gas sector has experienced a more pronounced downturn in 2023 and so far in 2024 compared to other segments of the oil and gas industry. The core factor is dramatically declined price caused by global oversupply, mainly because of US’s high production levels.
Overall, oil & gas industry ranks 6th on our list of worst-performing industries in 2024. While we acknowledge the potential of oil & gas industry as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
