Energy stocks are in the red currently on an otherwise pleasant day in the markets. There isn’t one clear driver behind today’s energy slump. Likely, fears of a recession, compounded by recent developments in oil production, are pushing energy companies down.
Recession fears and gas prices have become inextricably linked over recent weeks. Some analysts project that rising prices at the pump may lead to a wider economic downturn. Indeed, gas prices in the U.S. have hovered around decade-long highs for some time now. It’s been the main the perpetrator behind the country’s currently rampant inflation. For energy companies however, the elevated prices have mostly been to their benefit.
Exxon Mobil (NYSE:XOM) and Devon Energy (NYSE:DVN) are up 42% and 33%, respectively, this year on the back of sky-high margins. This comes even as the S&P 500 approaches a 25% drop year to date. However, as fears of a recession continue to bubble over, energy companies may stand to shed some of their growth this year.
Why Are Energy Stocks Down Today?
Analysts and economists expect energy prices to see a swift decline should the economy take a turn for the worst. Not without precedent of course, the 2008 market crash saw gas prices plummet more than 60% as Americans began opting for low-cost transportation like trains, busses, and even bicycles.
As such, with recession fears hitting a near fever pitch this week — the S&P 500 is on track for its worst week since 2020 — some have taken a clear bearish stance on energy companies.
In addition, as per the U.S. Energy Information Administration’s (EIA) Drilling Productivity Report released earlier this week, oil production across the country is set to increase over the next month. The Permian Basin is set to surpass 5.3 million barrels per day (bpd) in July up from its current roughly 5.2 million bpd. Should the projections prove accurate, it would represent a new peak in production for the largest U.S. oil field.
Increased oil supply has reasonably proven a bearish indicator for energy companies which have largely benefitted from the shortage.
XOM and DVN are down 5.2% and 8.2%, respectively, today.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.