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Big Oil Stocks Are Crashing on More Bad News

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

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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.

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Stocks Mentioned

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

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