Why ExxonMobil, Phillips 66 and ConocoPhillips Stocks Collapsed Today

What happened

Shares of oil stocks, including ExxonMobil (NYSE: XOM), Phillips 66 (NYSE: PSX), and ConocoPhillips (NYSE: COP), slumped significantly lower in Monday’s trading, ending the day down 5.1%, 7.1% and 7.5%, respectively. In part, the decline in the share price can be attributed to the decline in the price of oil – as you might expect – with the cost of WTI crude down 0.8% today and Brent prices rising. decrease of 1.2%. But in part, that story is bigger than a single day variation in the cost of crude oil.

After all, drops of just 0.8% or even 1.2% aren’t very big – certainly not big enough to explain, on their own, the 7.5% drop in the Conoco share price! Additionally, if you look closely, you might notice that the price of oil is actually high – not down – nearly 5% last week.

So what

So what Is explain the declines? Well, consider what’s been going on in the news lately. Wednesday last week, the day before Thanksgiving, when few investors paid much attention to the direction of oil futures, The Wall Street Journal indicated that he had just come into possession of internal documents from ExxonMobil. And according to these documents, the oil giant predicts a drop in oil prices “for much of the next decade.”

Indeed, ExxonMobil has revised its forecast to predict oil prices 11% to 17% lower than previous forecasts in each of the next seven years as energy demand remains dampened due to a slowing economy. post-coronavirus, all over the world.

ExxonMobil isn’t the only one to worry, either. As CNBC reported today, OPEC officials also see the “immense challenges” of the pandemic. OPEC President Abdelmadjid Attar warns that the coronavirus has dealt a “massive” and “severe” blow to the global oil industry and, as “the pandemic continues to rage with cases skyrocketing in many parts of the world, ”fuel demand could remain depressed until at least 2021, prompting further calls for prolonged production cuts.

Now what

The good news (for energy investors) is that production cuts are likely to happen eventually. As Reuters reported this afternoon, OPEC and allied oil-producing countries such as Russia continue to discuss extending their current policy of keeping oil production at 7.7 million barrels. per day below capacity until at least early 2021. The bad news is that not all members agree with the move, with Russia in particular funding for a production increase of 0.5 million barrels per day as of January.

If Russia is successful, and unless there is an immediate increase in global oil demand due to the expected arrival of several new coronavirus vaccines, oil companies could see their hard-won oil price hikes over the course of the past week erased in a few months. Investors’ decision to ditch oil stocks today suggests that – irrational as it may sound – the chance that oil producers decide to increase production in the midst of a saturated market is a very real risk and cannot be ruled out.