On Tuesday, crude oil futures broke to fresh lows not seen since March 2009 — effectively ending the dead cat bounce we’ve seen off of the late January lows.
West Texas Intermediate fell below the $43-a-barrel handle as a confluence of factors worked against energy prices, including the ongoing strengthening of the U.S. dollar (on Federal Reserve rate hike fears), rapidly filling onshore inventory capacity and an ongoing push to new highs in U.S. production (despite a steep drop in the U.S. drilling rig count).
This adds to the selling pressure that started on Friday when the International Energy Agency said that oil prices haven’t fallen enough to cut supply. We’ve certainly seen that here at home as U.S. production keeps rising despite another drop in the U.S. drilling rig count (the 14th consecutive week and at the fastest rate in 29 years).
Inventories have swelled to levels not seen since the 1930s in response, filling onshore tanks to about 60% of capacity (versus 48% at this time last year) according to the U.S. Energy Information Administration. As things stand now, Bloomberg estimates that onshore storage will hit capacity in June — at which time a flood of supply could pour into the cash oil market, pummeling prices.
The need for even deeper cuts to the U.S. rig count and the inevitable top-line impact to energy producers will mean more pain for energy sector stocks like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX), both of which saw their shares drop out of multi-month trading ranges this week to return to levels last seen in 2013, as well as overall corporate earnings growth and business investment.
Reality will hit when these companies start reporting quarterly earnings at the end of April. Recently, my Edge Pro subscribers bagged a 99% gain trading the CVX Mar $105 puts between Feb. 20 and March 4.
That puts five dividend-focused energy stocks — domiciled outside the United States, and thus doubly threatened by the strengthening of the dollar — at great risk.
Here are five energy dividend stocks to avoid:
5 Energy Dividend Stocks to Avoid: Eni SpA (ADR) (E)
That one-day drop nearly wipes out the one-year dividend yield of 8.7% — illustrating the dangers of holding onto these yield plays in a turbulent environment.
A break below the January low near $32 would put the 2011 low of $28 in play — a near 15% drop from current levels.
5 Energy Dividend Stocks to Avoid: Total SA (ADR) (TOT)
A breakdown here would put the 2013 lows near $43 in play — a near 10% drop from current levels that would be enough to eclipse the one-year dividend yield of 5.8%.
For context, shares are down a whopping 34% from the highs reached last summer.
5 Energy Dividend Stocks to Avoid: BP plc (ADR) (BP)
Shares have already sliced below their 50-day moving average and look set for a test of the December-January lows near $34. That’ll be worth a 9% decline from here.
Shares are already down nearly 27% from the highs hit last June. Compare that to the one-year dividend yield of 6.4%.
5 Energy Dividend Stocks to Avoid: Royal Dutch Shell plc (ADR) (RDS.A)
The next support level is down at $52.50 — a near 9% drop from current levels.
The overall decline from last summer’s highs is more than 27%. Compare that to the one-year dividend yield of 5%.
5 Energy Dividend Stocks to Avoid: Statoil ASA (ADR) (STO)
Norway’s Statoil ASA (ADR) (NYSE:STO) has suffered the indignity of falling all the way down to its 2010 lows near $16 a share; a far cry from the highs near $31 set during the summer of 2014.
A failed retest of support at $16 would set up a fall to minor support at $15 before the financial panic lows of $12-to-$10 come into play — potentially a 40% drop from here
Compare that to the one-year dividend yield of 5.6%.