One of the key asset classes that many expected to benefit from the ongoing tensions between Russia and Ukraine has been commodities. In particular, oil has been predicted to possibly outperform in these uncertain times. However, today’s price action among various energy companies has investors asking: why are oil stocks down today?
After all, the sanctions many expected to be imposed on Russia would be energy-related. Additionally, Russia’s Nord Stream 2 pipeline had already been effectively shut down by Germany. With Russia being the world’s third-largest oil producer, many expected this supply disruption to increase crude oil prices, which it has. However, oil stocks like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), Schlumberger (NYSE:SLB), Marathon Oil (NYSE:MRO) and BP (NYSE:BP) have all moved significantly lower in today’s session.
Let’s dive into what’s driving downside pressure with oil stocks today.
Why Are Oil Stocks Down Today?
These aforementioned oil producers are each highly sensitive to oil prices. This morning, oil prices did surge to multi-year highs on news of the Russia-Ukraine conflict. Specifically, Brent crude and WTI crude hit highs above $105 and $100 per barrel today. However, both prices have dropped meaningfully from those levels since this morning.
In part, it appears that the economic sanctions recently announced by the U.S. and NATO allies weren’t as harsh as what was initially being priced into oil this morning. Concerns that these sanctions could impact the global oil supply have commodities investors bullish on oil. However, investors also appear to be disappointed with President Joe Biden’s recent speech. Little in the way of commentary was provided on U.S. production. There was also some commentary against oil producers using current events as an opportunity to profit and/or raise prices.
Overall, it appears this geopolitical unrest is likely to change the supply-demand fundamentals of the energy market. However, the extent to which these headwinds are priced in already remains to be seen.
For now, investors in oil stocks appear to be understandably cautious.
On the date of publication, Chris MacDonald 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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