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Big Oil Stocks Continue to Crash With Oil Prices

By Tyler Crowe - Mar 18, 2020 at 12:45PM

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With oil prices cratering as the markets digest the impacts of COVID-19, those price drops are taking big oil stock values with it.

What happened

With oil prices continuing to plummet, so too are the share prices for big oil companies. At the time of this writing, shares of the five largest integrated oil and gas companies are down 5% or more. Here's a brief snapshot of how things look as of 11:15 a.m. EDT. 

Company Price change
ExxonMobil (XOM -3.69%) (5.9%)
Chevron (CVX -1.97%) (11.4%)
Royal Dutch Shell (RDS.A) (RDS.B) (8.1%)
BP (BP -1.03%) (9.5%)
Total SA (TTE -0.62%) (11.5%)

So what

While the broader market continues to reel from the impacts of the COVID-19 outbreak, one of the effects that has come more and more into focus is the decline in oil and gas demand over the next several months -- and potentially for the rest of the year. According to the most recent projection from the International Energy Agency (IEA), global demand for 2020 is expected to drop by 2.5 million barrels per day. 

An oil platform at sunset

Image source: Getty Images.

That projection, in addition to OPEC's recent decision to do away with production quotas and Saudi Arabia's announcement that it is increasing output, is causing oil prices to crater. As of this writing, the price of a barrel of Brent crude, the international benchmark price, has declined 9.3% to $26 per barrel today. 

At these prices, it will be incredibly challenging for any oil company to make money. While Big Oil companies also have assets in refining and retail to help offset the volatility of oil prices, a decline in demand will likely also have a significant impact on results on these parts of the business as well. 

Now what

The one thing these companies have going for them over other publicly traded energy companies is the ability to weather storms like this thanks to their size, cash reserves, and balance sheets. Both Chevron and ExxonMobil have incredibly conservative balance sheets with debt to capital ratios below 20%, while BP, Shell, and Total have considerable cash reserves. 

XOM Debt To Capital (Quarterly) Chart

XOM Debt To Capital (Quarterly) data by YCharts

These things should help cushion the blow that's likely to come over the next several months, and perhaps longer. The question for these companies isn't whether they will go bankrupt, but whether they will be able to maintain their generous dividend payouts. As cash coming in the door starts to dry up, it will be harder and harder to maintain dividend payouts. Both ExxonMobil and Chevron pride themselves on being Dividend Aristocrats and will likely lean on their balance sheets to maintain payouts for some time, but the market seems to indicate that dividend payouts won't last.

I can't predict whether they will be able to keep their dividend payouts or not. That will likely depend on how long this current situation lasts. If we see continued declines in global demand as much of the world remains hunkered down, and if we don't see any drastic cuts in supply from major producers, it's a real possibility these companies will cut dividends to preserve cash. 

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Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
$88.12 (-3.69%) $-3.38
Chevron Corporation Stock Quote
Chevron Corporation
$146.98 (-1.97%) $-2.96
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
BP p.l.c. Stock Quote
BP p.l.c.
$28.77 (-1.03%) $0.30
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
TotalEnergies Stock Quote
$52.97 (-0.62%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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