Shares of oil and gas majors ExxonMobil (XOM 2.22%), Chevron (CVX 2.47%), and ConocoPhillips (COP 3.91%) were all trailing the market today, falling 3.6%, 2.8%, and 4.2% at their lows, before recovering to declines of 3%, 1.9%, and 3%, respectively, as of 12:51 p.m. ET.
The declines stood in contrast to the broader market indices, which all bounced into positive territory by that time.
Unsurprisingly, oil prices were down sharply on the day. Lower oil prices may could offer some relief to consumers, perhaps explaining the rise in other sectors, but the reasons for the price decline may not ultimately be a great sign for the economy overall.
NYSE: XOM
Key Data Points
A weak jobs report, tariff threats, and Russia
This morning, the Automatic Data Processing (ADP) jobs report for February was released, coming in far below expectations. Private sector jobs added were just 77,000, down from the 186,000 added in January and well below the 144,000 that was expected.
The big miss was likely caused by the same factors that has caused a recent downturn in consumer sentiment, as well as reductions in estimates for gross domestic product (GDP) growth: tariff uncertainty, along with cuts to government spending and the laying off of large swathes of federal workers.
These rapid-fire changes have upended the prospects of economic growth in the near-term and increased the possibility of stagflation, since tariffs raise prices to consumers while also harming economic activity and lowering business confidence.
Image source: Getty Images.
Another possible headwind to these three stocks is that the Trump administration has said it would likely counter price increases from tariffs by "unleashing American energy," thereby lowering energy prices for consumers. For instance, just today, the Trump administration's Department of Energy approved an extension of Exxon's Golden Pass LNG export terminal.
The problem for energy stocks is that while lower regulations would be a tailwind for production growth, increased supply could also cause lower prices, counteracting those lower costs and leading to a potential overall negative impact to profits.
As if that weren't enough, there is also the possibility that another big source of global oil supply may come online soon in a bigger way: Russia.
Two days ago, it was reported that the Trump administration had directed officials to draft a proposal on lifting sanctions on Russia, which would likely come in conjunction with a ceasefire in the war in Ukraine. Then yesterday, Russian officials said ending the war would be conditional on those sanctions being relieved.
Russia is obviously a big oil producer, and while it has been able to sell oil via some workarounds amid sanctions put on by the Biden administration, full sanctions relief could make it easier to sell to more countries, and thereby receive better prices. Increased competition in currently sanctioned countries could lower the overall price of Brent Crude, which is the price at which Exxon, Chevron, and ConocoPhillips have been realizing.
Slowdown or no?
Energy stock shares did rebound off their lows later in the day, as did most stocks, after the administration announced a one-month pause in tariffs for automakers who complied with the 2020 USMCA agreement between the U.S., Mexico, and Canada during the trading day.
That being said, the chaotic tariff announcements, delays, and backpedals are clearly causing employers to slow down hiring amid all the uncertainty. Judging by recent data, an economic slowdown appears to be happening. Whether it turns into a recession or amounts to just a growth scare remains to be seen.
Lower oil prices may be good for consumers, assuming they still have a job, but it won't be great for these oil giants. While these three may see some relief on regulations and costs, the offset of lower oil and gas prices may more than compensate for it.
Energy investors therefore need to hope for a pickup in growth once the economy digests all the tariffs, federal layoffs, and perhaps the relaxation of Russian sanctions in the first few months of the new Administration.
