Why Are Oil Stocks Down Today?

  • Oil companies are down across the board today.
  • These stocks are likely feeling the effects of potential cost-reduction legislation hitting Congress soon over a proposed gas-tax holiday.
  • Crude futures are down 4% today.
Oil stocks - Why Are Oil Stocks Down Today?

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Oil stocks are falling today alongside the price of crude futures. It seems recession fears and cost-reduction measures aren’t boding well for many oil companies, which have largely thrived this year.

Crude oil was down nearly 4% at one point today, likely in response to a recent initiative from President Joe Biden’s administration. Biden is calling on congress to pass a gas-tax holiday as a way to ease prices at the pump.

The tax break is divisive on both sides of the isle. Some are doubtful the holiday would even guarantee lower gas prices. At one point, Speaker of the House Nancy Pelosi argued oil companies could simply use the gas tax holiday to widen their margins rather than pass on the savings to consumers.

With that said, the legislation is unlikely to pass the Senate. Assuming all 50 Democratic and Independent Senators support these measures, Biden would need at least 10 Republicans to vote in his favor. Despite its improbability, this is likely the logic behind today’s oil slump.

Many oil companies, like Marathon Oil (NYSE:MRO), Devon Energy (NYSE:DVN) and Exxon Mobil (NYSE:XOM), are in the red today as a result. MRO is down nearly 6% at the time of writing, while Devon and Exxon stocks trend in the red 3.7% and 2.2%, respectively.

Oil Stocks Slide Amid Desperate Search for Gas Price Relief

While oil companies are reeling today, this year they’ve had little to complain about. Russia’s invasion of Ukraine — and the subsequent sanctions placed on the former — have put upward pressure on gas and oil prices across the globe.

Today, the average cost of a gallon of regular gas in the U.S. is nearly $5, according to AAA. As a result, most oil stocks are up substantially on the year, even despite recent pullbacks. Unfortunately, most of these companies are pocketing the additional gains in the form of massive stock buybacks.

XOM stock is up more than 40% this year, even after losing 7% of its share price the past five trading days. Meanwhile, Devon is up a jaw-dropping 103% over the past year, soaring more than 25% since January.

Whether the Biden administration will manage to ease prices at the pump remains to be seen.

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.


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