Fortunes in the energy sector continued to evaporate after OPEC members declined to set oil production limits at their meeting last Friday.

On Tuesday, Brent fell below $40 a barrel for the first time since February 2009. It rebounded slightly, to $41.25 on Wednesday, after US crude-oil stocks declined by 3.57 million barrels in the latest week, when a slight increase was expected, the WSJ reported.
 
Investors and executives may have entered capitulation mode, with the S&P Energy sector now down 23.3% ytd.

Most notably, Kinder Morgan slashed its full-year dividend by 74% in order to preserve funds for capital expenditures and for servicing its $41 billion of debt, Bloomberg noted.

The company was a pioneer of the MLP industry, but changed its structure last year from an MLP to a corporation.

That said, Kinder’s announcement reinforced concerns that MLPs’ dividends may not be secure. NYSE Alerian MLP ETF, a benchmark of pipeline and transportation MLPs, is down 40.4% ytd.
 
The 12/8 FT included an article titled “Oil price plunge revives fears of dividend cuts.” The concern is that even big U.S. oil companies might cut their dividends. That’s not very likely, but the share prices have dropped so that their yields now exceed 4%.
 
Energy sector revenues and earnings are still dropping sharply. Earnings are expected to fall 58.6% this year, but stabilize next year.

The sector’s forward P/E has climbed to 28.0, double the 14.2 multiple it sported a year ago, confirming our view that the most expensive oil in the world is in the U.S. stock market.

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research. To read more of his blogs, CLICK HERE NOW.