Why oil prices have crashed—and what investors should do now:
Energy traders at the New York Mercantile Exchange trade crude oil futures in New York. It was only a month ago that I began advising investors to ease up on certain energy stocks, following 20%-30% gains since the beginning of the year. But a brutal May and a weak start to June have sent oil prices -- and some energy companies -- back into bear market territory.
The global oil demand picture has been mixed in recent months. The International Energy Agency reported that oil demand numbers for the January-February period in China grew by 410,000 barrels per day year-over-year. India's demand grew by 300,000 BPD, and U.S. demand was close behind with 295,000 BPD of growth.
This explanation promotes the fear that crude oil will soon end up like coal, which in turn helps push oil prices lower than they should be. Bloomberg recently projected that oil demand in China will peak in 2025 as a result of EVs. Second, we should consider the different segments of the energy sector. When oil prices fall, typically oil producers get hit the hardest. Pipeline companies usually take a milder hit, and refiners often benefit because their margins expand.
The supermajors Chevron and ExxonMobil saw respective declines of 2.2% and 8.4%. Incidentally, this puts Chevron's yield above 4%, which has historically nearly always been a good buy indicator.
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