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Oil Stocks Should Continue To Be Avoided

Mar. 06, 2020 8:24 PM ETXOM, CVX162 Comments
Malvin Spooner profile picture
Malvin Spooner


  • Oil stocks usually suffer more than the price of crude.
  • Dividend yields of oil stocks generous but at extreme risk.
  • Avoid oil stocks until crude inventories hit max.

The oil stocks are being clobbered, and one might be tempted to 'buy low.' After all, Chevron's (CVX) dividend yield is above 5%. Exxon Mobil's (XOM) dividend yield is nearly 7%. However, I remain bearish because experience has taught me that, when it comes to the stocks of energy companies, they tend to outperform the crude price (overshoot) and underperform when oil prices are falling. It is increasingly likely the stocks will continue to fall more in percentage terms than the price of oil. You can see this in the below chart comparing the price of Chevron (as one example) to the price of WTI crude.

(Source: Tradingview.com)

An advantage the U.S. has enjoyed over the past year is rising exports. According to the recent Energy Information Administration (EIA) Weekly Report:

U.S. crude oil exports averaged 2.98 million barrels per day (b/d) in 2019, an increase of 930,000 b/d (45%) from 2018 (Figure 1). The number of destinations for U.S. crude oil exports increased from 41 to 44, and Canada continued to receive the largest share (15%, or 459,000 b/d), followed by South Korea (14%, or 426,000 b/d). U.S. crude oil exports to China, the third-largest export destination in 2018, fell by nearly 100,000 b/d to average 133,000 b/d in 2019.

Although exports from the US to other countries more than offset the decline in China last year, this won't be the case for the next several months or even years. It is also unlikely OPEC can afford to reduce production sufficiently to help the industry in a meaningful way.


Photo by Worksite Ltd.

We need to wait for demand to rebound to normal levels, and there's no telling at this juncture how long this will take. No wonder then that crude futures prices are heading south. Just be aware the stocks will

This article was written by

Malvin Spooner profile picture
Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He authored An Investment Maverick's Guidebook which blends his experience touring across the heartland of the United States on his Harley with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources predicted the prior boom in natural resources - published early in 2004. He now teaches Finance, Economics, Business Strategy & Professional Ethics course at a Canadian college.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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