×

Oil volatility will continue in 2016: Expert

All eyes are on oil as the commodity settled down on Wednesday after the American Petroleum Institute reported an inventory build of 2.9 million barrels. Analysts had expected a decline.

In the wake of consistent bad news for oil, some investors have shied away from allocating their assets in the energy sector.

South Texas Money Management has rated energy stocks as underweight for about two years, considering that underlying economics are pointing to lower oil and some 80 percent of the world's oil supply is owned by a state directed economy, said the company's chief economist, Jim Kee.

"I think that's why markets are reacting in a negative way, anytime you see oil kind of free falling below $40 a barrel," investors can expect more volatility, he told CNBC's "Power Lunch" on Wednesday.

He expects conditions to remain volatile into 2016. "There's just a supply glut out there that would probably take at least six to 12 months to work off, regardless of what global demand might do," he noted.

Still, other market watchers expect production cuts from oil-producing countries in the coming year, and they have yet to discount the sector completely.

"I do think that cuts in production are going to catch up here soon, with cuts in rig count. I'm a little more neutral there," said Rob Morgan, Sethi Financial Group chief investment officer.

While the rig count has fallen, drillers have increased the amount of oil produced by rig.

With the cost of energy lagging, the resulting consumer savings may soon boost the shopping sector, particularly with discount stores like T.J. Maxx, said Michael Mussio, portfolio manager at FBB Capital.

"TJX offers kind of premium products at discount prices and consumers like that," he noted. "Any kind of savings that hasn't flown through yet from oil prices — TJX could be a benefactor of that."

—CNBC's Evelyn Cheng contributed to this report.