RBC: “Energy, Stat Arb And Value Teams Are Getting Blown Out”

Jon Economy

Is today’s the day someone – following the suddenly resurgent VIX – finally blows up? Here are some timely thoughts from RBC’s head of cross-asset correlation Charlie McElligott.
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Why Energy Teams Are Getting Blown Out
THE ENERGY / ‘VALUE’ MARKET-NEUTRAL / MEAN-REVERSION MELTDOWN: Currently, we see crude scrambling-higher despite last night’s bearish API’s and generally weak price-action as traders began fading the ‘9 month extension’ story as many instead continue to focus on ever-ramping US shale supply (word of warning: OPEC trades the market like no other, I would be shocked if they were keeping an additional ‘further production cut’ in their back-pocket (in conjunction with the extension) to catch the market with flat-footed expectations into their policy announcement).
The ‘real’ fireworks off the back of the crude move however have come in the energy equities space, specifically within the market-neutral community. Since the start of the year, the energy sector (-10.2% YTD) has come unglued, spending the majority of 2017 as the S&P’s worst-performing sector (although currently we see ‘Telco’ holding the title -11.6% YTD) after having finished 2016 as the S&P’s BEST performing sector (+23.7% in ’16).

This post was published at Zero Hedge on May 17, 2017.