Today, oil stocks are once again in focus for investors. From Marathon Oil (NYSE:MRO), Phillips 66 (NYSE:PSX) and ConocoPhillips (NYSE:COP) to Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM), it hasn’t been a pretty day. At today’s lows, each of these oil companies saw their valuations drop by 4% or more.
It’s truly incredible how quickly sentiment can go from ultra-bullish to bearish in short order. Such is the case with this market. Indeed, there are multiple factors driving this move in oil stocks today.
Why Are Oil Stocks Down Today?
The first factor investors are pricing in is oil prices. The price of crude is down again today, having neared $100 per barrel this morning. Given the fact we were trading around $120 per barrel days ago, this move will affect forward-looking cash flow numbers in investors’ discounted cash flow (DCF) models.
Much of the reduction in oil prices is due to investors forecasting weaker demand moving forward. Given the speed of interest rate hikes of late, growing consensus is building that a recession this year or next is likely. Such a recession, globally or not, would impact the price of crude dramatically. No one wants to see another 2020, but that could be where we’re headed.
Another key driver is the push from the White House to lower gas prices. With a gas tax holiday potentially on the table and President Joe Biden urging oil companies to make less profit, the rhetoric from Washington isn’t positive for this sector. It hasn’t been for some time, but it has really heated up recently.
Additionally, news that crack spreads are rising is bearish for oil prices. As refiners take a larger cut of the overall gasoline price, consumer demand could further deteriorate. Limited refining capacity and overall demand are key drivers which have taken the crack spread to more than $50 per barrel (that’s high.)
On the date of publication, Chris MacDonald did not have (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.
