What happened
Oil and gas stocks that were popping until last week opened Monday on a weak note, with some stocks in particular taking a hard hit. Here's how much some of the notable names had dropped as of 12:20 p.m. ET:
- ExxonMobil (XOM -2.98%) was down 3.2%.
- Tellurian (TELL) was down 12.4%.
- Transocean (RIG 0.26%) was down 10.7%.
So what
Blame the rout in oil and gas stocks on energy prices that got knocked off today.
As of this writing, price of West Texas Intermediate (WTI) crude -- the U.S. oil benchmark -- was trading down 6.8% while natural gas was trending around 2.9% lower. A confluence of factors is hitting fossil fuels today.
Image source: Getty Images.
To start, monthly production from OPEC+ hit its highest level in seven months in February, according to the S&P Global Commodity Insight survey. OPEC+ is the world's the largest oil-producing alliance comprising 13 OPEC and 10 non-OPEC oil-exporting nations. This output bump comes at a crucial time when Russia's war with Ukraine has threatened to disrupt global supply of oil, given that Russia is the world's largest oil exporter.
Meanwhile, Russia and Ukraine reportedly conducted their fourth round of negotiation today. Plus, China has imposed strict lockdowns in some provinces amid rising coronavirus cases, triggering fears of a slump in the demand for oil. China is the world's largest oil importer. Both of these factors are putting a lot of pressure on energy prices, and therefore on oil and gas stocks that were surging in recent weeks alongside commodity prices.
ExxonMobil's CEO Darren Woods, in fact, said at a recent conference that the oil giant was trying to maximize production to meet rising demand amid declining production in Russia. Exxon stock has been upgraded by multiple analysts in recent days as most expect the company to benefit from rising oil and gas prices as it strives to boost production in the Permian Basin.
And when oil producers like Exxon boost production, it also means higher demand for services like contract drilling that companies like Transocean specialize in.
Now what
One of the biggest reasons why commodity stocks are often considered risky investments is their strong correlation to commodity prices and other uncontrollable factors. That's exactly what played out in the oil and gas sector today: Prices of oil and gas are still high and major players like Exxon are still boosting production and becoming financially stronger, but energy prices drove investor sentiment more than anything else.
That'll likely continue to be the scene at least as long as the Russia-Ukraine conflict continues, which could also mean more periods like this, when oil stocks are up one day and down the next.
