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.

One of the most important features of the US shale oil and gas revolution has been the rolling wave of oversupply that has moved through the energy value chain, creating market imbalances and distorting long-standing price relationships between various hydrocarbons.

Over the past several years, oil and gas companies’ overzealous production of natural gas and natural gas liquids has restored the fortunes of domestic petrochemical producers, an energy-intensive industry that relies on these commodities to generate power and as feedstock.

Within this space, olefin producers have benefited the most thus far, thanks to extraordinarily low feedstock prices. But the multiyear boom in profit margins for US polyethylene producers appears to be winding down, with the baton of profitability likely to move further downstream.

At the end of 2016, Wall Street analysts’ median forecast called for West Texas Intermediate (WTI) to average $56 per barrel in the third quarter of 2017 and for Brent to approach $60 per barrel by early 2018.

Whereas most investors cheered OPEC, Russia and a handful of other oil-producing countries’ “historic” agreement to cut output, we took a less sanguine outlook in an Alert issued on Dec. 12, 2016:

OPEC would lose credibility next year as the regulator of the global oil market. Meanwhile, WTI will range between $40 and $60 per barrel for at least the next two to three years. In the near term, we continue to expect WTI to tumble to less than $40 per barrel, once these realities become apparent.

In subsequent writings, we called for oil prices to spend much of the next two years between $45 and $55 per barrel, with spikes outside that range ultimately proving to be relatively short-lived.

This macro view has played out thus far, with sentiment on the efficacy of OPEC’s production cut beginning to sour in March, reflecting concerns about the rapid growth in US oil output in the first half of 2017. Against this backdrop, WTI tumbled to about $42 per barrel in June, before enjoying a modest oversold bounce.

With second-quarter earnings season set to begin in earnest later this month, we update take advantage of the pause before the deluge to review and update our outlooks for commodity prices and energy stocks.