There’s a key question many investors in the market are asking right now — why are oil stocks down today? Perhaps the more specific question should be: Why is the price of oil plunging today?
As of 1:30 pm EST, the price of crude oil (both WTI and Brent) was down 4.7% since yesterday. This decline is material, as such outsized moves are out of the ordinary for the market on a day with relatively little earth-shattering news.
That said, as one might expect, there was some news flow driving this price action today. Notably, weak demand for gasoline and a report that Russia may lift its diesel ban shortly has driven the price of crude oil lower today. This news sent shares of a range of oil and gas players lower today. Among the notable decliners were Phillips 66 (NYSE:PSX), Marathon Petroleum (NYSE:MPC) and Schlumberger (NYSE:SLB), oil companies with outsized exposure to the production of oil.
Let’s dive into what investors may want to make of today’s impressive drop in this sector.
Why Are Oil Stocks Down Today?
It’s clear that forward-looking oil demand is not what many investors expected. A range of U.S. government data highlighted weak demand for gasoline, as well as a surge in oil stocks at the Cushing, Oklahoma, WTI delivery hub. Across the U.S., gasoline stocks rose by 6.5 million barrels, with analysts anticipating a rise of only 200,000 barrels. This came as demand for gasoline fell to 8 million barrels per day in the U.S., far below what was expected and the lowest reading for the year. Furthermore, reports that U.S. services sector growth slowed in September appear to be increasingly priced in the future price of gasoline today.
Higher gasoline prices appear to be filtering into lower demand as consumers cut back on spending wherever possible. Surging inflation appears to be taking its toll, and as many economists say: “The best solution to higher price is higher prices.” Today that appears to be the case.
Additionally, the fact that Russia may end its diesel ban in the coming days suggests that supply and demand in this sector could come more into balance. For now, that means lower prices and a reversion toward the mean.
While good for consumers, this sudden move has negatively impacted key oil stocks. These will be stocks to watch moving forward as the energy market searches for its equilibrium level.
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.
