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Why are oil stocks down today?

Today, oil stocks are once again the focus of investors’ concerns. Of Marathon Oil (NYSE:MRO), Phillips 66 (NYSE:PSX) and Conoco Phillips (NYSE:COP) at Chevron (NYSE:CLC) and Exxon Mobil (NYSE:XOM), it was not a good day. At today’s low, each of these oil companies saw their valuation drop by 4% or more.

It’s truly amazing how quickly sentiment can go from ultra-bullish to bearish in a short period of time. This is the case with this market. Indeed, several factors are behind this movement in oil stocks today.

Why are oil stocks down today?

The first factor taken into account by investors is the price of oil. Crude prices are down again today, after approaching $100 a barrel this morning. Given that we were trading around $120 a barrel a few days ago, this move will affect forward-looking cash flow numbers in investors’ discounted cash flow (DCF) models.

Much of the reduction in oil prices is due to investors anticipating weaker demand in the future. Given the rapidity of interest rate hikes of late, there is a growing consensus that a recession this year or next is likely. Such a recession, global or not, would have a dramatic impact on the price of crude. No one wants to see another 2020, but this could be where we’re headed.

Another key factor is pressure from the White House to lower gasoline prices. With a gas tax holiday potentially on the table and President Joe Biden urging oil companies to make less profit, the rhetoric from Washington is not positive for this sector. It hasn’t been for a while, but it’s really warmed up recently.

Additionally, news that crack spreads are rising is bearish for oil prices. As refiners take a bigger cut in the overall price of gasoline, consumer demand could deteriorate further. Limited refining capacity and global demand are the main drivers that have driven crack above $50 a barrel (that’s high).

As of the date of publication, Chris MacDonald had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to publishing guidelines.

Chris MacDonald’s love of investing has led him to pursue an MBA in finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative and long-term investment outlook.


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