Early vs. Late Cycle in Energy

The Gist (1) As expected, refining equities respond most favorably during the bottoming and early stages of the business cycle before fading as the recovery progresses. (2) Oilfield service performance tends to improve as the business cycle progresses.

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Hello friends, we just returned from two weeks of travel, which wrapped up with a spring break trip to South Carolina. Travel is always brutal, but I’m glad to be back.

Before the holiday break, the table below was well received.

The key takeaway from the table above is this:

• Energy’s worst performance typically occurs from the peak of the business cycle through the first half of the downturn.

• As the recession deepens and the economy begins to bottom, energy performance tends to improve.

• But as the expansion progresses—from early to mid- to late-cycle—energy equity performance generally begins to fade.

This observation sparked a lot of interest from subscribers to break the analysis down by subsector—specifically E&Ps, MLPs, integrateds, refiners, and oilfield services.

In this post, we tackle the latter two: refining and oilfield services, while data for the other sub-sectors is still being finalized.

To track refining performance, I use my cleverly named Crude Chronicle Refining Index (CCRI). That said, there are a couple of caveats to keep in mind:

1. Pure-play refining equities are a relatively recent development in the energy space. The further back you go, the more likely you're dealing with integrated companies.

2. The CCRI is North America-centric by design.

Using the data from the chart above, we break it down into the table below and draw the following conclusions: