XOM, CVX, COP, OXY, MRO: why are oil stocks down today?

Today was a very red day for the whole market. For energy stocks, this downward movement has been more pronounced. As a result, many investors may ask the question: Why are oil stocks down today?

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As with any sector-specific movement, there is usually more than one catalyst at play. For energy companies such as Exxon Mobil (NYSE:XOM), Chevron (NYSE:CLC), Conoco Phillips (NYSE:COP), western oil (NYSE:OXY) and Marathon oil (NYSE:MRO), this is certainly true. These oil producers are all down between 3% and 6% at the time of writing.

It is important to keep today’s movement in context. Indeed, oil stocks have been among the biggest gainers over the past year. These stocks rose on stronger oil prices and investor demand for this battered sector. A rotation into value stocks sent valuations of energy companies soaring. Additionally, investors looking to diversify some of their gains from technology into stocks seen as more stable have largely shifted their capital into the energy and materials sector.

However, it’s clear that “all is not well” with oil stocks right now. Let’s dive into some of the factors driving these stocks down today.

Why are oil stocks down today?

The energy sector is really a specific commodity game. Oil producers such as the aforementioned four stocks are price takers. Therefore, the price of the underlying commodity (crude oil) has a significant impact on the valuations of these stocks.

Unfortunately for investors in the energy sector, the trend has not been positive in this regard. Indeed, the price of oil has just hit a three-month low, as investors expect increasing supply and potentially reduced demand. The previously strong energy demand outlook following this pandemic has been hit hard by the delta variant.

Various reports indicate a weaker than expected energy recovery, if cases, hospitalizations and deaths continue to rise. Oil happens to be a global commodity, so when other countries (especially in Asia) announce shutdowns, it’s very bad for the whole industry. As a result, oil stocks are among the most economically sensitive globally. As a result, this latest wave of Covid is hitting those stocks hard.

Additionally, concerns about the Fed’s tapering have also hit the broader stock market. The valuations of all companies are based on key data such as discount rates and risk-free rates. When these rise, the stock price falls.

Investors are taking all of these factors into account today and seem to conclude that energy is a sector to avoid at the moment.

As of the date of publication, Chris MacDonald had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

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Felix J. Dixon