Oil and gas stocks failed to keep up with the recovery in equities seen across most other sectors in 2012, driven by both downside commodity price pressure and a less-than-stellar exploration success rate. This leaves an interesting opportunity for risk diversification in 2013 that could work even for those looking to build cautious portfolios.
After a bullish, “risk-on” first two months of the year, the oil and gas sector struggled to keep pace with the rebound in performance seen across the majority of equities during 2012. While oil prices largely held up despite significant demand uncertainty, the market has continued to discount the share price of explorers and producers alike, with the FTSE 350 oil and gas index closing -12% on the year, compared with a gain of 8% for the FTSE 350 over the same period. E&P juniors (ie AIM) have been more resilient, closing the year approximately flat, albeit suffering the volatility that comes with this part of the sector (from a high of up 47% to a low of down 5%…timing is everything)! However, the overall message is that more value has been left in the oils sector than many other equities, begging the question of whether this points to a more positive 2013.
Link here – http://www.edisoninvestmentresearch.co.uk/sectorreports/SeismicReflections_28_January_2013.pdf