Gas prices are now a political issue, and while some blame the President and others blame oil companies, I think both are wrong — the anger and culpability should be focused more on the U.S. dollar than the oil industry. The production of crude oil is rising in the U.S., and the exports of refined products are now at a 62-year high. However, if the dollar drops 30%, the price of crude oil will rise 30% since crude oil is priced in U.S. dollars.
Of course, there are other reasons for high oil prices — the tension between Iran and the West that is turning into a big game of chicken as the world waits to see if Iran will blink, as well as supply disruptions of light sweet crude oil from political unrest in South Sudan and Yemen, and the fact that Libya is not back up to its original production before its civil war is keeping the upward pressure on Brent sweet crude and has many Asian buyers of sweet crude scrambling.
Plus, the demand for crude oil rises during the summer months, so no price relief is likely until global demand turns down in the fall when seasonal demand ebbs. Naturally, the prices at the pump are now a big political issue, especially since this is a Presidential election year, so high gasoline prices will likely remain in the news for the next several months.
So, with prices at the pump getting everyone all worked up, who’s making money?
Let’s take a look at three major oil and gas companies to see if any of the big players are worth owning now.
As the third largest integrated energy company and the fifth largest refiner, ConocoPhillips (NYSE:COP) is a big player in the global oil and gas market. The Houston-based company has almost 30,000 employees worldwide spread across 30 countries. The company also diversifies its operations across four core segments: petroleum exploration & production, natural gas, petroleum refining & supply and chemicals & plastics production.
The company operates 19 refineries and is responsible for the Conoco, Phillips 66 and the 76 line of gas stations.
In addition to being a globally recognized brand, ConocoPhillips attracts investors through its hefty 3.6% dividend yield and its steady track record of increasing dividend payment.
However, lately the company has struggled to match its earnings performance from a year ago. Before the opening bell today, ConocoPhillips released lackluster first-quarter earnings performance. Compared with the same quarter last year, profits declined 3% due to weak refining margins. Adjusted earnings per share weighed in at $2.02, which missed the $2.08 per share consensus estimate. Over the same period, total revenues climbed less than 1% to $58.35 billion.
Currently, COP is a C-rated stock in my PortfolioGrader tool, and today’s earnings announcement will probably cause its Fundamental Grade to weaken even further.
With that in mind, I recommend that you hold off on buying shares of COP until this company can get a handle on its bottom line.