Indicators in the energy sector have provided such a kaleidoscope of crosscurrents recently that investors are exhausted or exiting. The energy sector makes up around 7% of the S&P, but relative underperformance in the first quarter means big index money continues to shun the sector. Also, an outlook of more variables than certainty usually adds up to a simple reaction—selling.

For investors, there is clearly frustration. Many E&P and oilfield service companies are accelerating efforts to drive growth, but sliding backward in terms of stock market valuations. Often, this reflects near-term investment costs weighing on margins. Margin pressure may be an inevitable intermediate step in a sound long-term strategy, but this has not been rewarded in the recent market climate.

This frustration, on the part of both stock and commodity investors, has been compounded by what now is much diminished patience over the slow speed of crude and product inventory drawdowns in the wake of the OPEC decision to cut production last November. A meeting was scheduled for May 25 to discuss a possible extension of the agreement through the end of this year.

“I’m not going to deny that the market is wearing thin on patience,” said Jeff Currie, the head of commodity research at Goldman Sachs, speaking on Bloomberg TV in late April. Inventory levels have already fallen for both crude and products outside the U.S., he said, but a domestic drawdown tends to take place more slowly due, in part, to loadings being attracted by the size of the U.S. market and the liquidity offered by the WTI crude contract.

“You have the WTI contract in Cushing,” he said. “It’s going to be the last place you’ll see it.”

Not surprisingly, investment sentiment toward the energy sector has been winning no prizes given recent performance. In April, for example, the S&P Oil & Gas Exploration & Production ETF (NYSE Arca: XOP) fell by about 6.6%. This followed a first quarter loss of about 9.6%, making for year-to-date results of down 15.6%. At its April 28 close, the XOP trailed its April 2016 close by 2.2%.

Meanwhile, the broader equity indices, especially the NASDAQ, have been reaching new heights.

Commentaries have varied, but have been far from upbeat. One sellside commentator described the sentiment among energy-specific investors as “extremely low.” Another sellside firm advised clients to “remain patient and hold your nerve.” In a late-April commentary, Tudor, Pickering, Holt & Co. (TPH) offered longer-term encouragement, but noted “apathy and inertia remain firmly in place despite continued strong inventory indicators.”

Outside the U.S., Schlumberger Ltd. is rarely at a loss to identify encouraging trends. However, its CEO, Paal Kibsgaard, noted that “this slower recovery and lingering price pressures mean that we will likely face another challenging year in international markets.” The current period was one in which “the industry in many ways lacks overall direction.”

Of course, an old saying is that “it’s always darkest before the dawn.” What could be on the horizon?

Increased evidence of a drawdown in global inventories would obviously help assuage concerns over a too-robust ramp in U.S. production, which several analysts predict could approach or exceed 1 million barrels per day of growth next year.

In addition, a re-emergence in corporate M&A activity could potentially provide a useful marker on valuations. As one long-time industry observer commented, “Corporations need to stop pressing the pedal on drilling and start to consolidate.”

Kibsgaard noted that with the industry “heading to a third year of significant underinvestment,” it is increasingly likely to result in a “medium-term supply deficit.” He cited data indicating that depletion rates are “rapidly accelerating in several key non-OPEC countries,” a theme shared by TPH.

“The market is in an undersupplied trend,” stated TPH. “Global conventional production should struggle longer term on the heels of protracted underinvestment. The hyper-concentration of short-cycle opportunities in the U.S. Lower 48 makes a quick return to growth in the rest of the world nearly impossible.”

But if it’s viewed as increasingly likely that growing U.S. output will edge out non-OPEC conventional production to meet global demand, what will entice energy buyers to step up their interest?

Among those furthest along in developing unconventional production, Pioneer Natural Resources Inc. offered one of its guidelines.

“We’re not exploring for oil; we’re exploring for economics,” said Pioneer CEO Tim Dove, who spoke in New York at the IPAA’s OGIS conference.

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