XOM, CVX & COP affected by falling Oil Prices?
Global oil market is currently facing a significant challenge due to an oversupply of oil.
This has led to a drop in oil prices, which is a growing concern among oil-producing countries.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, have been trying to manage this issue by cutting production, over the past 2 years. (see below).
Despite these efforts, oil oversupply continues to impact the market.
On 06 Sep 2024, OPEC+ has once again agreed to delay a planned oil output increase for October and November 2024 after crude prices hit their lowest in 9 months.
OPEC+ even qualified that it could further pause or reverse the hikes if needed.
These measures have been aimed at stabilizing the market and boosting prices.
Effectiveness of these cuts is still uncertain as the global demand (meaning, China’s demand) for oil remains weak.
At the same time, the International Energy Agency (IEA) has reported that global oil inventories have been rising, which is a clear indication of the ongoing supply glut.
In July 2024 alone, global oil stocks increased by 19 million barrels, reaching a total of 3.1 billion barrels.
This rise in inventories is putting additional pressure on oil prices, making it difficult for OPEC and its allies to achieve their goal of market stability.
IEA Oil Market Report (OMR) - August 2024.
IEA’s August 2024 OMR report.
In Q2 2024, although global demand for oil has increased by 870,000 barrels per day. it has been “contra” by falling Chinese demand.
Oil demand forecasted to increase in 2024 & 2025, remaining largely unchanged based on IEA August report.
In fact, it will be lower than 2023’s 2.1 million b/d growth, because the global economy is growing more slowly.
At the same time, the world has more oil available now than ever before.
In July 2024, world supply increased by 230,000 barrels per day to 103.4 million barrels per day.
This is because OPEC+ members increased oil production more than offset reduction from non-OPEC+ members.
The world will have a lot more oil in 2025 than in 2024. Other countries will produce more oil, but OPEC+ might reduce production to counterbalance the effect.
Analysts are predicting that the oil market will continue to face challenges in the coming months.
The IEA has revised its forecast for global oil demand growth, lowering it to 2.2 million BPD for 2024, a markdown from an earlier 2.4 million barrels per day estimate.
Downward revision reflects
Ongoing economic uncertainties.
Global economy’s slow recovery.
Despite OPEC and its allies’ effort, outlook for oil market remains uncertain.
Continued oversupply & weak demand are likely to keep prices under pressure.
Wall Street analysts believe that further production cuts may be necessary to achieve a balance in the market but they are not without concerns.
Additional cuts could lead to a loss of market share for OPEC members, as non-OPEC producers (ie. US, Guyana, Canada and Brazil) may step in to fill the gap.
Implications to US energy stocks ?
Immediate impact of falling oil prices on US oil stocks will be negative.
As oil prices decline, (a) revenue and (b) profitability of these companies decrease, leading to a decline in stock prices as investors become less optimistic about the future prospects of these companies.
The top 3 US energy stocks most impacted include - $Exxon Mobil(XOM)$ , $Chevron(CVX)$ and $ConocoPhillips(COP)$ .
Even Mr Warren Buffett’s other favourite energy stock $Occidental(OXY)$ will not be spared either with the “slump” in energy sector stocks. (see below)
Just August alone: (see above)
(1) ExxonMobil:
Has fallen by -4.45% to $112.64 per share (as of 6 Sep 2024).
If oil prices continue to dip, it faces pressure squeeze on its revenues.
Hopefully, Exxon Mobil’s diversified portfolio, including chemical and specialty products, might help cushion the impact.
The pinch to its Core upstream segment remains.
(2) Chevron:
Has fallen by -4.10% to $138.56 per share (as of 6 Sep 2024).
Faces similar challenges due to weak demand and falling oil prices.
Chevron’s strong balance sheet and focus on cost-cutting measures might provide some resilience
(3) ConocoPhilips:
Has fallen by -2.08% to $106.20 per share (as of 6 Sep 2024). Least impacted stock.
Its significant exposure to crude oil prices, is likely to be directly impacted by the current market conditions.
ConocoPhillips efforts to (1) streamline operations and (2) focus on high-return projects might help mitigate some of the adverse effects
(4) Occidental Petroleum:
Has fallen by -11.11% to $52.03 (as of 6 Sep 2024). Worst performer.
Will not elaborate due to real estate limitations.
The day when demand (for oil) outstrips supply will be the right “entry” point. Until then, energy stocks remain volatile. Buy the dip or Sit & wait, both are valid strategies. Which is yours ?
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