Crude oil, energy stocks drop amid concerns of a COVID comeback

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WTI crude oil plunges back below $100/bbl on Tuesday, as fears of a global economic slowdown and a strong dollar continue to weigh on stocks and commodities.

Additionally, Shanghai and some other Chinese cities are enacting fresh COVID-19 restrictions from business shutdowns to broader lockdowns in an effort to rein in new infections from the highly infectious BA.5.2.1 subvariant of the virus.

WTI crude (CL1:COM) for August delivery -6.8% at $96.95/bbl, and September Brent (CO1:COM) -6.5% at $100.11/bbl.

Energy (NYSEARCA:XLE) is Tuesday's worst performing sector in the S&P 500, -2.8%, led by Hess (HES) -5.1%, Occidental Petroleum (OXY) -5% and NOV Inc. (NOV) -5%.

President Biden will make the case for higher oil production from OPEC when he meets Gulf leaders in Saudi Arabia this week, but "little hope is being assigned to Biden's visit to Saudi Arabia unlocking more production from them or the UAE," OANDA analyst Jeffrey Halley said.

ETFs: (NYSEARCA:USO), (UCO), (SCO), (USL), (DBO), (USOI), (NRGU), (XOP), (VDE), (OIH), (IEO), (DRIP), (CRAK)

The S&P 500 Energy Sector index (XLE) has lost 23% since June 1, and energy shares may be losing their status as the place where investors can find refuge from this year's stock market carnage.

Comments

[Storm Blown]

The price of Oil,as long as it stays close to $90 will still return massive profits for producers,share buybacks and Dividends have to happen.
Many will pay down debt and churn out huge earnings in the future.
Ignore the noise,play the long game,sell a Call on a long Position and Buy a Put,hedge if you are playing the short game.

[Longbottom]

Covid has overstayed its welcome in the news cycle. I'm not seeing my patients come in with heart attacks or strokes like the original variant or delta. It's become endemic; more infectious and less deadly. Flopping it around as a news article is pretty 2020ish.

[colorado buff]

@Longbottom that’s great news no?

[Green Chiles]

@Longbottom I don't know what city you live or what vaccine you have, but I am betting that Shanghai is bigger and sinovac not as effective as your vaccine. Try reading the article doc. It's not about you and your patients.

[Longbottom]

@colorado buff Very much so.

[Green Mean Machine]

Uncle Warren bought another 4.3 million shares this week

www.benzinga.com/...

[turbofinance]

Something is going on with OXY after hours, unusual price action IMHO…no form 4 or anything I can see

[pat45]

we will see how much Saudi puts in.....

[FactDistortion]

Right on time for massive O&G buybacks!

[Devlau2]

Blaming Covid is farcical. Oil/gas pricing has & will always be based on supply & demand. Supply is much higher than Big Oil is willing to admit to keep pricing high. Demand "may" wain "if" there is a long recession. That's conjecture at best. Focus solely on supply/demand ratios; the rest is talking-head NOISE. Big Oil, OPEC, Russia will not engage in wholesale massive production efforts only to watch prices drop precipitously. To them this is a once in a decade opportunity to make big profits before the reality of Climate Change sets in soon. $90-100 bbl oil is not a significant drop. $100 oil is nearly unprecedented! Wait until winter. Russia will punish the EU for supporting the Ukraine. VLCCs & LNGCs will see daily rates double to keep Europe warm. Oil will see $125 again, maybe higher through Q1 '23. Gas used by utilities (also coal) will jump as well. This party still has a ways to go. The naysayers are just that.

[Who Moved My Cheese]

@Devlau2 Demand has waned. That's the reason the price at the pump is lower. Oil will likely be $65 BBL by Christmas. Sell is the only viable option.

[Steve__C]

@Mlon Eusk Lol. Is that another way of saying the SPR is being pumped into the market to keep pace with rising demand? Take 7mb off that number and there's the supply/demand reality.

[fypg699]

@Mlon Eusk Ya buddy keep dreaming

[shucmu]

Only one option to do now: sell oil equities

[pgh27106]

hilarious ! you can't turn on a device without the shills screaming " ENERGY SHORTAGE!" and this "shortage" results in plummeting energy prices and stock prices of energy producers looking like a bitcoin chart ! Looks like the "commodity boom" is more accurately BOOM your money is gone !

[cacerolo]

Oil price down 7% one day before Biden trip to Saudi Arabia. What a coincidence? They tell us because of COVID fears but hard to believe. Airlines 10% up in the day. I guess they will hold oil prices for a couple of weeks to show good will to USA. After that fundamentals will be back in control.

[Darren McCammon]

Right or wrong the price of oil declining will cause energy firms to also decline in price. Fund flows guarantee it. In fact one can be kind of impressed that some names aren't falling as much as the price of oil and natural gas is today. Maybe Mr. Market is actually starting to distinguish between the better higher cash flow investments in the sector and others?

Why oil and natural gas prices themselves are falling is questionable. We've seen time and time again that these goods, especially natural gas, are one of the more inelastic goods out there. The demand does not fall much, or rise much due to price, and while oil demand does fall in a recession, and/or shutdowns, natural gas demand doesn't fall anywhere near as much. Furthermore, we see countries like Sri Lanka, Pakistan, etc. imploding because people can't get enough food and energy, while places like the US and EU also experience significant inflation in food and energy costs for the same reason. We also see the President trying to apply pressure / going hat in hand, in order to get more supply. The problem is clearly that there isn't enough to go around. That supply is not able to meet demand.

To me it just seems like the oil market wants to go down for now, so its going down. We can theorize reasons, like China shutdowns, selling to cover losses and margin calls elsewhere, etc. but I think we just have to accept Mr. Market can be stubborn and irrational in his beliefs. That Mr. Market is currently looking for a reason to sell off. These downdrafts most likely represent significant opportunities, but the question on when to pull the trigger is also near impossible to determine. Timing is essentially asking is when is Mr. Market going to stop being irrational?

[huskers123]

@Darren McCammon Because oil CO’s are priced as if oil is trading about $65 per barrel.

[GGB11]

@Darren McCammon - Spot on. For those of us paying in US dollars, oil is down about 4% since 1 April. For Europeans paying in Euro, it is up about 5% in that same period.

The US dollar is up 10% (already pricing in int rate hikes??) but I think it will peak shortly. Oil is harder to predict but I expect it to rise when everyone discovers that demand is somewhat inelastic relative to a shallow recession. It would be a gift if the market times oil demand along with a falling dollar.

[imlongnow]

@Darren McCammon yes, the market is yelling fire ( recession) in a crowded movie theatre way before any evidence of it, just to short energy and profit from it......the stock market is moving oil down, not the oil market.....supply and demand will prevail......even the IEA is warning the oil crisis is here to stay. We will see from the inventory reports supply and demand not from the grand casino stock market ( yes, the casino market that ran up growth stocks through the roof only to bury them 30-70% only months later.....casino market can't price stocks fairly to save it's face.)

[Who Moved My Cheese]

Can't imagine anyone holding oil stocks at this point.

[Apt Learner]

@Mlon Eusk Your trolling game is excellent.

[brettze]

no matter what those oil dipsticks say, just cut back your gasoline/diesel purchases 20%! Oil is no longer dependable for our economy at all! We have to move toward renewables to keep those from going back to drill for more at higher costs, anyway!
If you don't then we will have 20% inflation!
just stop speaking to your friends, relatives, etc who still drive like nuts!

[Bkirk]

@brettze Is this satire?

[jack kreg]

@brettze you need to slow down with the copy and paste all over SA, your message is wrong, ideologic driven and misses the point that Biden is the cause of high energy prices, Biden inflation sent oil prices from $40 barrel under Trump to $120 barrel, that is cause of high energy prices.

[Agbug]

@Bkirk , It was mildly entertaining for a while. Now it's become what the mute button is provided for.

[brettze]

oil is coming back down . Exxon and Chevron will cut dividends soon!
Dump oil stocks now!

[fypg699]

@brettze ha ha you keep doing that

[Brock Ekstein]

@brettze go back to Twitter.

[Djreef1966]

No one gives a crap about COVID.

Sad what they print when they don’t know the truth.

[huskers123]

@Djreef1966 exactly. Hedge Funds throwing out every thing they can think of. Surprised anyone would take this seriously. No one is stopping what they are doing because of COVID today. Meanwhile more job hires and openings, at historic levels. That means more demand not less. Stick with energy, don’t let the hedge funds scare you out of your positions.

[estellaxtw]

@Djreef1966 It is all about the lockdowns in China.

[Djreef1966]

@estellaxtw Meh, total side show. More like lockdown light. These are just for show, and absolutely not the reason why oil is dropping.

[valeurchat]

Interesting how COVID and recession risks only affect the energy complex. Hotels up, retailers up, big caps in general up.....quite remarkable really.

[estellaxtw]

@valeurchat It is about lockdowns in China, these reduce crude demand, but do not effect Hotels in other countries.

[HunterKiller89]

So much downside getting priced in for things that not only haven't happened yet, but are unlikely to have meaningful impact either...

[elliot_mllr]

@HunterKiller89 That's called a buying opportunity.
Elliot Miller

[KittyKat Klean]

@elliot_mllr I tend to value your advice Miller. Let's hope you are correct. If the war stops in Ukraine the price may drop further?

[Darren McCammon]

@KittyKat Klean
There isn't less oil coming out of Russia since the war started, there is more. So the Russia-Ukraine war ending, if it were to happen, is unlikely to effect oil prices much.

Natural gas supply to Europe on the other hand has seen actual decline in volume. So if the war ended, its possible the pipelines get turned back up to full volume and the price of natural gas in the EU drops precipitously.

[edaskew]

There's only one SPR. It can be emptied but once. After that, lookout above.

[edaskew]

At some point, the Chinese are going to have to give up. What they're doing is really crazy. Probably they are creating a larger public health issue than what would exist if they ignored Covid. Do they want to be like the native Hawaiians when they first encountered measles?

[BIZUN1973]

@edaskew you’d think. I think they’re not going to do it just to save face.

[edaskew]

@BIZUN1973 No, but at some point they need to do it to save themselves.

[Keops]

I predict that Saint Fauci will be back soon

[KittyKat Klean]

@Keops Good prediction. Wonder where he has been hiding?

[Brock Ekstein]

@KittyKat Klean They will trot him out before the mid terms. Along with the ballot boxes.