The Top Energy Companies Of Q1 2023

Last Friday a difficult quarter came to a close. The S&P 500 returned 7.0% for the quarter, but that performance is deceptive. Eight of 11 sectors underperformed the S&P 500 in Q1.

This is primarily because the S&P 500 has a high concentration of technology holdings. That sector — after a miserable 2022 — pulled out an excellent return in Q1, and that skewed the S&P 500 average. The Dow Jones Industrial Average, by contrast, only returned 0.4% for the quarter.

The median sector, as shown in the graphic below, was the Real Estate sector, which pulled out a 1.9% Q1 return. The energy sector, which I predicted would underperform this year, turned in the 3rd worst sector performance in Q1.

The primary drivers for the energy sector’s underperformance were weakening oil and gas prices. After averaging over $90 a barrel in 2022, Q1 saw oil prices dip below $70/bbl.

There were some good performers in Q1, but, the upstream sector didn’t fare too well.

According to data provider FactSet — which I use to analyze companies — the average upstream company lost 10.6% in Q1. These are the companies that produce oil and gas. Of the 54 companies that FactSet classifies as “Upstream”, 42 had a negative return in Q1.

The midstream sector did quite a bit better. Among the 46 companies that FactSet classifies as “midstream”, the average return was 7.9%. Best among the group was NGL Energy Partners, which generated a total Q1 return of 139.7%.

The integrated supermajors declined by an average of 0.1%. Among this group, the best performer in Q1 was BP with a total return of 9.7%.

The Big Three refiners — Marathon Petroleum, Valero, and Phillips 66 — gained an average of 8.6% for the quarter. Marathon was the best performer in the group with a gain of 16.5%. Refiners generally do better when oil prices are falling.

I had expected the weakness in the energy sector to continue throughout the year, but this week OPEC announced a 1.16 million barrel per day (BPD) production cut. The cut would last from May through the end of the year, and with the Strategic Petroleum Reserve largely depleted, the Biden Administration will have limited options for responding to these cuts.

But it means the energy sector’s prospects look a lot brighter for the rest of the year than they did a week ago.