Energy stocks are under some serious pressure Wednesday as crude oil prices suffer a big move to the downside: The United States Oil Fund LP (ETF) (NYSEARCA:USO) is down about 4% in mid-day trading, taking it below its 50- and 200-day moving average in what is the largest one-day decline since early March.
There are a number of catalysts driving the move lower. Inventories are at record highs. U.S. shale production is ramping up aggressively. And OPEC, in the wake of its production-freeze agreement late last year, appears to be once again losing market share — the recapturing of which was the reason the oil sheiks engaged in their price war in 2014 in the first place.
Much depends on the upcoming OPEC policy meeting on May 25, at which time a decision is expected on a possible six-month extension to the production-freeze agreement depending on the cooperation of non-OPEC producers (such as Russia). There is no easy answer for OPEC. If they continue their production cap, U.S. shale producers will fill the void. U.S. rig counts are up for 14 straight weeks returning output to levels not seen since April 2015.
While there is a risk of further “verbal intervention” from OPEC officials — something that has time and time again boosted energy stock and oil prices since a production freeze agreement was first teased in February 2016 — the sector looks vulnerable for further losses. Here are five stocks to avoid or sell.