Shares of large-cap oil and gas majors Chevron (CVX +2.06%), APA Corporation (APA +4.12%), and oilfield service provider Halliburton (HAL 0.78%) fell hard in April, down 18.7%, 26.1%, and 21.9%, respectively, according to data from S&P Global Market Intelligence.
Of the three stocks, only Halliburton reported earnings during the month. But that was largely inconsequential to the price decline, as the across-the-board sector declines came on the heels of the biggest monthly decline in oil prices since November 2021.
NYSE: HAL
Key Data Points
Oil has a historically bad month after "Liberation Day"
The price of Brent and WTI oil dropped 15% and 18%, respectively, in the month of April, according to CNBC. That's actually the largest one-month decline in oil since November 2021. Thus, it's no wonder these three stocks, which are all levered to the price of oil to some degree, fell in tandem.
The major part of the sell-off was due to the fallout from "Liberation Day" on April 2, when President Trump announced much higher-than-expected tariffs on a wide range of countries, including friendly allies as well as adversarial trading partners like China.
In the wake of Liberation Day, oil prices and stocks fell hard, as investors came to fear either recession or a stagflationary slowdown. Given that oil isn't one of the goods subject to high tariffs, however, an economic slowdown brought on by tariffs would likely crimp demand in a big way, leading to lower prices.
Stocks, however, recovered from the April plunge by the end of the month, as the administration gave out some tariff exemptions and intimated that it would be making trade deals soon, likely with allies.
But why didn't oil prices recover, as stocks did? For a couple of reasons. First, while the administration has said it was close to making some trade deals, which could result in tariffs being reduced, the negotiations with China are likely to be protracted. If higher tariffs remain on China, that could hurt demand in the country, which is still the second-largest oil consumer in the world behind the U.S. So, even if trade deals with allies are made, a long and protracted trade war with China could still depress oil demand.
Second, on April 30, it was reported that Saudi Arabia would no longer be willing to prop up prices with sustained production cuts, and that it may actually increase production starting in June in an effort to win back market share. That could be for a few reasons -- one, Saudi Arabia could be attempting to force cuts from producers with higher break-even prices. It has also been suggested that the increases may be a move to curry favor with the U.S. administration by keeping oil prices low.
Oil is a commodity, so the higher potential production from OPEC+ coming in June is likely what kept oil prices from recovering as stocks did. Ironically, even though the administration is thought to be pro-oil and gas, it's actually also pushing for lower prices. So, that may actually be bad for oil-related stocks such as these three.
Image source: Getty Images.
Meanwhile, Halliburton fell following its April earnings release. Halliburton actually beat expectations for first-quarter revenue and met expectations for adjusted (non-GAAP) earnings per share, although revenue still fell 6.6% year over year.
But besides the reported numbers, the main reason for the decline was likely management's forward commentary. CEO Jeff Miller cautioned that Halliburton's upstream customers were reevaluating their drilling plans in the wake of the April 2 tariff announcements, which increased the likelihood of more declines in the coming quarters. Management also forecast a two- to three-cent impact from trade tensions, not only on the demand side, but also on the supply side, due to higher prices from steel and aluminum.
Oil and gas could continue to tread water
If OPEC+ ramps up production in June as is anticipated, it's likely oil prices could stay down at these low levels for quite a while. After all, the U.S. economy hasn't seen the full impact of the April 2 tariffs play out just yet. While it's true some tariffs have been relaxed and some trade deals may come about, the ongoing uncertainty, both in the U.S. and China, is likely to weigh on demand.
Large oil and gas stocks may be OK maintaining dividends at these prices; they can also serve as a hedge against geopolitical supply disruptions, particularly if that involves Iran. However, absent that, it seems the price of oil may continue to underwhelm this year. That may be good news for an economy hit by tariffs, but it probably isn't great news for oil and gas stocks.
