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Why Marathon Oil Stock Plunged Nearly 55% in the First Half of 2020

By Matthew DiLallo – Jul 7, 2020 at 11:39AM

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It has been a rough year so far for oil producers.

What happened

Shares of Marathon Oil (MRO 0.57%) plummeted 54.9% during the first half of this year, according to data provided by S&P Global Market Intelligence. The main factor was the massive crash in crude oil prices as the COVID-19 pandemic crushed demand in an already oversupplied market. 

So what

Oil prices began 2020 at around $60 a barrel, but cratered as demand plummeted after governments imposed restrictions on travel and nonessential businesses to slow the spread of COVID-19. At one point in April, May futures for West Texas Intermediate (WTI), a key U.S. oil benchmark, crashed into negative territory because the country was running out of space to store excess oil. While WTI crude would go on to stage an epic comeback -- it rallied by more than 90% during the second quarter -- it still ended the first half of the year down 36% at just over $39 a barrel. That slump weighed on most oil stocks, including shares of Marathon Oil

An oil pumping unit at sunset.

Image source: Getty Images.

The oil and natural gas producer lost money during the first quarter. To offset some of its losses, Marathon slashed its capital budget by 50% and suspended both its dividend and share repurchase plan to preserve cash. Management says those moves will enable the company to emerge from this downturn in an even stronger position

Now what

The steep share price decline made Marathon a battleground stock. It's now one of the most widely held oil stocks on the popular Robinhood trading platform, where retail investors' enthusiasm for it is fueled by speculation that shares could bounce back in a major way if the oil market recovers further. While that's certainly possible, Wall Street doesn't agree: Most analysts view Marathon as less attractive than its oil industry peers due to its higher valuation and leverage ratio. Those contrasting views will make it an interesting oil stock to watch in the second half of the year.  

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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