On 21 June alone, US high yield energy spreads widened 21bps. But this does not yet look like cause for wider concern. The last big oil rout in late 2015 and early 2016 left US shale survivors more efficient, with break-evens closer to USD 45 a barrel. It’s harder now to see another wave of consolidation and closures, unless the oil price would remain below that level for an extended period. And at any rate, for equity markets, the US energy sector’s importance to the overall market has dwindled, now less than half its early 2009 weight – going from 14.1% of the S&P 500 to 5.9% (see chart of the day). Finally, we believe the oil price will rebound in coming months, with US inventories likely to decline in the third quarter, and a flattening oil curve indicating no huge supply boost on the horizon.
 
So, the market now appears to be testing whether OPEC or US shale firms will blink first. The answer may be both, if you consider preliminary US rig productivity data or Iranian talk of further OPEC cuts. In the meantime, we can’t see this period of oil weakness growing into a bigger problem for stocks. And bearish views today mean an eventual turn in sentiment could provide a rapid boost for the sector. We remain overweight global equities, and continue to like energy stocks.