Why are oil stocks down today? Well, it surely doesn’t help that the S&P 500 is down more than 2% so far in Friday’s session and that crude oil prices are down almost 6%. That impact is being felt across the energy space today and this week.
For instance, the Energy Select Sector SPDR ETF (NYSEARCA:XLE) is down 7% on the day. That’s on track for its worst one-day loss since May 9, when it fell 8.4%, and is now down 10.3% for the week. Further, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP) is down 8.4% on the day.
Specifically, Exxon Mobil (NYSE:XOM) is down 5.7% on Friday and is 19.6% off its high. With a $356 billion market capitalization, Exxon is the largest energy company in the U.S.
Warren Buffett favorite Occidental Petroleum (NYSE:OXY) is down more than 5% today and almost 9% for the week. It’s hitting its lowest level since Aug. 9. Lastly, Devon Energy (NYSE:DVN) is down almost 10% on the day and more than 15% this week.
However, to answer the question: “Why are oil stocks down today?” We have a somewhat complex answer.
So Why Are Oil Stocks Down Today? Three Reasons
We’ve gone from worrying about an energy supply shortage to worrying about a demand drop due to a global recession.
With fears of a recession in the back of everyone’s mind, oil prices are the lowest they’ve been since January. WTI crude hasn’t traded below $80 since Jan. 11 and earlier today, it marked a session low of $78.04.
Oil prices topped out at $130.50 in early March. At current prices, oil is down more than $52 a barrel, or a whopping 40%.
On top of falling energy prices, the surging U.S. dollar is acting as a headwind — both for oil prices and stocks. As the Federal Reserve continues to raise interest rates, the dollar continues to strengthen. A strong dollar is a negative for commodities and that can be seen today as oil, natural gas, copper, gold and other assets sink.
For what it’s worth, the dollar index is hitting its highest levels in 20 years.
So in essence, it’s more than just a supply imbalance or lack of demand. It’s worries over the global economy and the rising dollar that are sinking oil and energy prices. And if that weren’t enough, lastly, we have the fall in equities prices. The S&P 500 is within 1% of its 2022 low, as the bear market growls and is not sparing any sector at the moment.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
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