Please ensure Javascript is enabled for purposes of website accessibility

Big Oil Stocks Are Crashing on More Bad News

By Jason Hall - Updated Jun 24, 2020 at 7:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Oil supply is rising while demand is still down.

What happened

The broader stock market is in a full-on sell-off on June 24, as COVID-19 cases move higher across the U.S. and investors sell on fears that the beginnings of an economic recovery could be at risk. Oil stocks in particular are taking it on the chin today, with the COVID news being paired with another week of data from the U.S. Energy Information Administration (EIA) showing that the oil market is still badly out-of-whack. 

Even the biggest Big Oil stocks are feeling the impact. As of 2:04 p.m. EDT, the following Big Oil stocks are down sharply:

Oil Stock Price change on 6/24/20
ExxonMobil Corp (XOM 0.87%) (4.2%)
Chevron Corp (CVX 0.14%) (3.9%)
Phillips 66 (PSX 1.89%) (6.1%)
ConocoPhillips (COP 2.38%) (5.5%)
Enterprise Products Partners (EPD 1.16%) (4.3%)
BP Plc (BP 0.80%) (4.2%)
Royal Dutch Shell (RDS.A) (RDS.B) (4.8%) and (5.4%)

Source: YCharts

So what

Starting with the EIA weekly data, U.S. oil inventories continue to build, while demand for refined products is still well below normal levels. According to the weekly petroleum report, total petroleum product inventories increased almost 4 million barrels last week, and the crude oil in commercial storage eclipsed 540 million barrels, 17% higher than the five-year average. 

Oil pumpjack in motion.

Image source: Getty Images.

On the demand side, the four-week average of refined products being supplied to the market is still 17% below last year's average. 

The continued imbalance between supply and demand, along with a broad increase in the number of COVID-19 cases in some of the biggest states, is affecting oil markets hard today. Crude prices have been steadily moving lower all day, and at this writing both Brent and West Texas futures are down almost 6%. West Texas futures are now below $40 per barrel again, while Brent is within pennies of falling below the $40 level. 

Now what

There is increasing risk that the COVID-19 pandemic is poised to take the wind out of the sails of the economic recovery many investors were expecting to continue. Daily new cases are at record levels in many U.S. states. Multiple governors are warning that they may need to increase enforcement of physical distancing orders and other mitigation efforts, including wearing masks in public places. It's possible that we could see some states begin to order business closures if new cases continue to grow unabated. 

This is clearly weighing heavily on oil stocks as well, particularly when combined with the fact that the EIA data shows that oil prices -- and many oil stocks -- may have gotten ahead of the actual recovery in demand. The fact that oil inventories continue to grow emphasizes this point.

XOM Chart

XOM data by YCharts

More evidence is the growing number of bankruptcies in the oil patch in recent weeks and the likelihood that the number of oil stocks that won't survive the downturn without going through bankruptcy is likely to grow. 

With that said, none of the Big Oil stocks above are at risk of bankruptcy. To the contrary, as a group, these are some of the strongest companies in the energy industry and at recent prices, could represent decent value.

Of the group, Phillips 66 and Enterprise Products Partners in particular are worth a look. Just recognize that the oil recovery is likely to have multiple fits and starts. And so long as COVID-19 remains, it's going to be a detriment to the full economic recovery that would drive oil demand back to pre-COVID levels. 

Jason Hall owns shares of Enterprise Products Partners and Phillips 66. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$94.00 (0.87%) $0.81
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.A
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$159.85 (0.14%) $0.23
Phillips 66 Stock Quote
Phillips 66
PSX
$90.00 (1.89%) $1.67
Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
EPD
$27.15 (1.16%) $0.31
BP p.l.c. Stock Quote
BP p.l.c.
BP
$31.67 (0.80%) $0.25
ConocoPhillips Stock Quote
ConocoPhillips
COP
$102.75 (2.38%) $2.39
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
RDS.B

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.