"The sector looks cheap," said Bank of America analysts in a report. "With the collapse in crude, the sector now trades at a 20% discount to the S&P 500 where it has historically traded in-line with the market." However, Bank of America warned of a potential value trap as diminished earnings forecasts are seen as likely.
Crude prices have been squeezed after OPEC declined to constrain production last week despite global oversupply and slowing growth in the eurozone and China. On Tuesday, West Texas Intermediate crude slid nearly 3% to $67.30 a barrel on Tuesday, around 36% lower than its mid-summer high.
"The suppliers are going to start restraining production at some point," predicted David Bechtel, principal of Barrow Funds, in a call. "They're going to want to see oil get back up into the mid-$80s, low-$90s minimum. It's probably a project that occurs over the next 12 to 18 months."
If plunging prices continue, though, some of the top dogs at the Federal Reserve don't seem fazed. Speaking at separate events Monday, New York Fed President William C. Dudley and Fed Vice Chairman Stanley Fischer praised the benefits of lower oil prices in fueling domestic growth and consumer spending. It "will lead to a significant rise in real income growth for households and should be a strong spur to consumer spending," said Dudley, speaking to an audience at New York's Baruch College.