Please ensure Javascript is enabled for purposes of website accessibility

Why Oil Stocks Are Coming Under Pressure

By Lee Samaha - Updated Apr 6, 2021 at 10:56AM

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

The price of oil continues to be impacted by supply machinations.

The OPEC merry-go-round continues. After surprising the market in early March by keeping supply restrictions in place through April, the group of oil-producing nations decided to surprise the market recently by increasing production levels in May and then again in June and July.

Oil jacks

Image source: Getty Images.

These actions have a distorting effect on the price of oil, and shareholders in major oil companies like Occidental Petroleum (OXY 3.41%) are feeling it, too. After surging in early March due to the rise in oil to $65 a barrel, Occidental stock slumped 7.6% on Monday, and the price of oil is now below $60 a barrel as this is being written.

OXY Chart

Data by YCharts.

The decision to increase supply is a victory for Russia, often seen as favoring production increases to maximize income from pumping oil. In contrast, the prime mover in curtailing supply, Saudi Arabia, has tended to favor aiming for higher oil prices.

As ever with commodities and commodity stock investors, it's a good idea to keep an eye on demand as well as supply. Growth in the global economy will increase demand in the future, and ultimately the interplay of supply and demand will determine the price of oil.

OPEC's sudden applying and releasing the brake on oil production has an artificial near-term impact on the price. But the reality is that OPEC members still need to sell oil, and oil-importing nations still need to buy. It's questionable just how much long-term impact such actions really have, something for Occidental investors to consider as the share price gets pushed around in the near term

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

Occidental Petroleum Corporation Stock Quote
Occidental Petroleum Corporation
OXY
$65.42 (3.41%) $2.16

*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 service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/23/2022.

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.