With the price of crude oil up over 24% YTD, one might be tempted to believe that the energy sector has been the place to hide in a market seemingly devoid of “value”. If you are of that belief however, think again because the energy sector (encompassing the range from downstream to upstream) has been one big disappointment with the best performing index notching a 5.10%return (E&P) and the worst -19.8% (service sector). What gives?. Not too long ago, the industry would have been swimming in profits and buoyant equity valuations with a $60/bbl crude price. In our view, the explosion in unconventional domestic production (shale) combined with a resumption of export barrels has led to a severe balkanization of prices across almost all global oil markets. Today’s energy investor must now contend with not only geo-politics, but also a myriad of spread differentials that can wreak havoc on the ability to forecast beyond the next several quarters, in spite of a high price environment. “A Barrel is a barrel is a barrel” is no longer the case, just ask any Western Canadian producer who is currently staring at a $20/bbl discount in the marketplace. Such severe spread differentials ultimately get resolved, but this takes time and time is something that the equity markets are currently not affording anyone in the energy sector.