Why ExxonMobil, Chevron and Other Big Oil Stocks Crashed Today

What happened

Oil and gas stocks were hammered again this morning to extend their losses from yesterday. Most stocks in the sector are trading deep in the red around noon as the market awaits the monthly oil market report from the OPEC oil cartel.

Here’s how some of the heavyweights were faring at 12:12 p.m. ET today:

  • ExxonMobil (XOM -5.69% ): Down 4.9%.
  • Chevron (CLC -5.06% ): Decrease of 4.3%.
  • western oil (OXY -1.91% ): Down 2.7%.
  • Phillips 66 (PSX -3.74% ): Down 3.5%.
  • PBF Energy (PBF -12.72% ): Down 10.2%.

So what

Oil prices are falling as rapidly as they have risen in recent weeks, triggering a selloff in oil and gas stocks. At noon today, West Texas Intermediate (WTI) crude oil and Brent crude oil prices were down about 8% each, while natural gas traded down 2.8%.

Oil prices soared to their highest levels since 2008 and nearly hit $140 a barrel on March 7 as the Russian-Ukrainian conflict escalated and forced the United States and its European allies to consider banning the oil imports from Russia.

Image source: Getty Images.

The ban did not take place and oil prices began to calm down soon after. Since then, the fall has been dramatic: Oil prices have fallen below $100 a barrel at the time of this writing. As prices continued to plunge, big institutions like hedge funds closed massive amounts of long crude positions last week, according to Bloomberg, and that added further pressure on oil prices this week. A long position simply means that investors have purchased commodity futures contracts (crude oil) in an attempt to profit from a rise in price. When prices started falling, they sold their positions to take profits and minimize losses.

As China, the world’s largest oil importer, puts several cities under lockdown to combat rising coronavirus cases, the possibility of lower Chinese demand has further exacerbated the sale of oil and gas .

In its monthly oil report released today, OPEC reiterated its previous outlook for oil demand growth, but kept this year’s consumption estimate under “assessment” given the uncertainty. geopolitics. OPEC also warned that the ongoing war in Eastern Europe and rising inflation in the United States, if sustained, could hurt oil consumption.

Until now, investors have been pumping money into oil and gas stocks due to soaring energy prices. A price reversal therefore unsurprisingly triggered a sell-off in stocks.

Analysts are also already rethinking their ratings on oil and gas stocks. Just yesterday, Morgan Stanley analyst Devin McDermott downgraded Chevron’s stock rating from “overweight” to “equal weight” because he believes the stock has started looking expensive after its recent recovery, according to TheFly.com. McDermott, however, still kept his price target on Chevron intact at $166 per share. It may not be a coincidence, then, that shares of Chevron closed Monday at $166.72 per share and fell today.

Notably, McDermott favors ExxonMobil over Chevron and sees the stock more attractive given Exxon’s efforts to cut costs and increase cash flow. Exxon also has greater exposure to downstream oil and gas businesses that are more resilient to fluctuations in oil prices.

McDermott also downgraded Occidental Petroleum given the stock’s stunning rally, but raised its price target slightly to $52 per share, thanks to the company’s high-quality assets and “non-market cash flow.” oil”.

Now what

It’s hard to predict where oil and gas prices might go next, so stocks that fell today could head either way tomorrow. However, these day-to-day fluctuations should only give speculators and traders sleepless nights. Investors need not worry as long as their long-term investment thesis in carefully selected oil stocks remains intact.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Steve R. Hansen