What happened
Unrest in China and the threat of more lockdowns there have investors worried about oil demand, leading oil prices to fall to levels unseen since late 2021. Major energy companies are feeling the sting, with shares of ExxonMobil (XOM 0.56%), Chevron (CVX 0.24%), and Kinder Morgan (KMI +1.32%) all falling as much as 3% Monday morning.
So what
Oil prices have been volatile this year, jumping by about 50% early in the year on hopes that demand would grow as the world recovers from the pandemic, but giving back most of those gains in recent months. Investors have been worried about central banker efforts to slow the economy and what that might mean for global demand.
China is only adding to that uncertainty. An estimated one-third of the country's population is currently under a full or partial COVID-19 lockdown, putting a real strain on economic activity. The lockdown has also led to street protests in China, creating the potential for further instability.
Add it all up and there isn't much reason for investors to feel confident. On Monday, the price of U.S. West Texas Intermediate (WTI) fell nearly 3%, giving up all of its gains for 2022. Major energy companies fell along with the price of oil.
NYSE: KMI
Key Data Points
Now what
It isn't just energy stocks that are trading down based on what is going on in China. A wide swath of the global economy has exposure to China, and broader markets are in the red on Monday as investors try to make sense of what is going on and figure out what the future might hold.
Further volatility is possible from here. On Dec. 4, the Organization of the Petroleum Exporting Countries (OPEC) and allies will meet and are expected to discuss reducing output targets, which could offset falling demand and provide a floor for energy prices. But OPEC for most of this year has been playing catch-up to falling demand, instead of being out in front of the trend.
For long-term holders, there is a lot to like about these energy giants. As prices went up, they showed strong restraint and didn't abandon years of disciplined capital expenditures policy. Today, all three of these companies offer dividend yields greater than 3% for those willing to ride out the volatility. There is no reason for investors to sell into these lower WTI price quotes.
