To say that 2017 has proved a challenging year for energy stocks would be an understatement.

The ebullience that reigned in the aftermath of OPEC’s November 2016 agreement with Russia and other major oil-producing countries has dissipated, thanks in part to the rapid recovery in US onshore drilling activity and output, persistently elevated inventories and oil prices that have slipped below $50 per barrel.

Upstream-related subsectors have borne the brunt of this pain, with the Bloomberg North American Independent E&P Index giving up almost 36 percent of its value this year and the Philadelphia Oil Service Sector Index plummeting 35 percent.

With WTI hovering around $45 per barrel, the market doesn’t appear to price in much risk that lower prices could lead to a moderation in onshore activity levels and production growth. As expected, the handful of upstream spending cuts announced during second-quarter earnings season primarily came from operators focused on marginal areas or burdened with strained balance sheets.

Meanwhile, the US oil-directed rig count also appears to have peaked and has started to trend lower, suggesting that upstream operators have responded to the decline in WTI and creating the potential for supply growth to moderate down the line.

Against this backdrop, we continue to favor midstream master limited partnerships (MLP) for their above-average yields and exposure to what we regard as a multiyear volumetric growth story where short-cycle US oil and gas production takes market share. In particular, basins that contain multiple hydrocarbon-bearing formations appear best-positioned for the long haul because of their superior economics.

Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover. Timing and stock selection—easier said than done with shorter cycle times—will be critical to producing differentiated returns.

We also continue to explore investment ideas related to energy efficiency, renewable energy and demand-side related opportunities, a process that we began with our recent issue on the petrochemical complex. Expect more in coming issues.