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Stock Market News: BP, Cabot Diverge in Crude Oil Rout

By Dan Caplinger - Updated Mar 9, 2020 at 1:28PM

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The market meltdown continued Monday morning.

The stock market got off to a bad start Monday morning, falling as much as 7% before trading curbs kicked in to cause a 15-minute halt shortly after the market opened. Following the pause, investors seemed more comfortable with the declines, and indexes actually regained a bit of ground. Nevertheless, as of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 2.68%) was down 1,682 points to 24,183. The S&P 500 (^GSPC 3.06%) fell 187 points to 2,786, and the Nasdaq Composite (^IXIC 0.00%) dropped 505 points to 8,070.

Coronavirus fears continued to hurt market sentiment, but over the weekend, a new factor hit the financial markets, as OPEC and Russia failed to reach agreement on a deal to try to reverse the recent slide in crude oil prices. As a result, the oil market plunged. That was bad news for oil giants like BP (BP 3.18%), but it brought a surprisingly positive reception from shareholders in natural gas producers like Cabot Oil & Gas (CTRA 1.74%).

BP: Bad petroleum

Shares of BP plunged 18% following bad news from the oil markets. Crude oil futures were down $7 per barrel Monday morning, bringing prices to about $34 per barrel, and oil had traded below the $30 mark overnight.

Four oil pumps silhouetted against a sunny sky.

Image source: Getty Images.

The downward move stems from disputes between Russia and OPEC nations, which disagree on the best way to try to contain the energy markets and maximize long-term value. OPEC, led by Saudi Arabia, has argued that trying to cut production is the natural response to falling demand for crude, stemming from the economic uncertainties as companies across the globe react to the COVID-19 outbreak.

However, Russia disagrees with the proposed OPEC strategy, arguing that such a move would play into the hands of U.S. oil and gas producers seeking to justify their strong production levels. Instead, Russia believes that it should allow prices to fall dramatically in an effort to choke off U.S. exploration and production companies. When Russia indicated it wouldn't curb production, Saudi Arabia retaliated with its own output increases, smacking the short-term oil markets.

The decline in BP shares has raised its dividend yield to nearly 10%, but many fear lower oil prices could result in massive profit declines if they persist for long. At this point, many energy companies face a ticking clock, and if major producers can't get their acts together soon, it could create big problems even for industry giants like BP.

A move up for Cabot

Meanwhile, shares of Cabot Oil & Gas were up 11%. Today wasn't a great day for the natural gas market either, with prices falling another $0.10 per million British thermal units to around $1.61. However, there's an argument that Cabot and its shale-gas producing peers could actually benefit from lower oil prices.

Cabot gets much of its production from the Marcellus Shale play in Pennsylvania, and part of what's been hurting the price of natural gas is the glut of production from the Permian Basin in west Texas. Oil production in the Permian has ramped up considerably, and with natural gas often found in conjunction with oil reserves, Permian-produced gas has made it more difficult on Cabot and natural gas producers in other parts of the country.

The bullish argument for Cabot goes like this: If producers in the Permian cut back on oil production as a result of the fall in crude prices, then it might also lead to less natural gas coming out of the ground there as well. That could potentially be good news for Cabot and its peers, as less supply would potentially put a stop to the weakening prices in the natural gas market.

Unfortunately, other factors still point to challenges for natural gas, including weather and the potential shift in demand that can result when oil gets cheaper. Nevertheless, investors think that there could be a silver lining for Cabot in oil's plunge, and they're hoping the shale gas specialist can use volatile energy markets to bounce back from a tough 2019.

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Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
$28.23 (3.18%) $0.87
Coterra Energy Inc. Stock Quote
Coterra Energy Inc.
$26.35 (1.74%) $0.45
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Dow Jones Industrial Average (Price Return)
$31,500.68 (2.68%) $823.32
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,911.74 (3.06%) $116.01
NASDAQ Composite Index (Price Return) Stock Quote
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$11,232.19 (0.00%) $0.00

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