Stocks are rising in late trading after a slow start to the day. By 3:30 p.m. EDT, the Dow Jones Industrial Average (DJINDICES:^DJI) was up a slight 0.15% in mixed trading.
There weren't any major economic reports out today, but oil futures dropped 2.1% to $100.75 for a barrel of West Texas Intermediate crude. This continues a long decline after the price of oil spiked when tensions flared up in Iraq.
The big news in oil today was that Iraq's oil production fell by 260,000 barrels per day in June after violence erupted in the nation's north, according to the International Energy Agency. But Saudi Arabia, Iran, Nigeria, and Angola increased production, so OPEC's overall production was steady at about 30 million barrels per day.
Oil has climbed in 2014 and jumped sharply last month on fear that Iraq's conflict would impact global supply, but that has not proven to be the case. Along with OPEC states picking up the slack, the U.S. continues to reduce reliance on places like Iraq.
Overall oil and oil byproduct inventories were actually up 4.6 million barrels last week, which also eased price pressure because there's no shortage of oil. We should also consider that net oil imports were down 1.32 million barrels per day last week from the same week a year ago. So Iraq's drop in production is dwarfed by increased production in the U.S.
Why Big Oil is down today
Domestically, there's no danger of oil getting tight, but that doesn't mean Big Oil companies Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) won't be affected by lower prices. Today their stocks have fallen 1.4% and 1%, respectively, on lower oil prices.
Chevron just reported that total production fell 0.8% sequentially to 2.566 million barrels per day in the second quarter. But that was offset by realized oil prices that were 0.5% higher domestically and 1.7% internationally, something that was more than wiped out today.
ExxonMobil will likely see similar pressure, especially after cutting capital spending to $37 billion this year from $42.5 billion in 2013. Both companies are reducing spending because they're seeing lower returns from massive projects and don't see value in taking such large risks.
Oil will still pop periodically, but the long-term trend is falling demand in developed nations, which will only continue as fuel efficiency standards increase and alternative fuels become more prevalent. That's a challenge for Big Oil for the long term.