Although the price of crude oil and energy stocks normally rise and fall together on Wall Street, a “unique backdrop” of economic pressures is pulling them apart in 2022.
In the last three months, crude oil prices have fallen 6.13%, while oil producers including Chevron, Hess, Diamondback and ExxonMobil remain firmly in positive territory. So far this year, the spikes in energy prices are even bigger, with Hess soaring 83% and Warren Buffett’s Occidental Petroleum soaring 105%.
Through Tuesday, NYMEX crude was up 5.54% for the month and 1.17% for the year. Brent crude has risen 6.37% in the month and 2.84% so far this year.
|HE IS||HESS CORP.||140.29||+4.28||+3.15%|
|CANINE||DIAMONDBACK ENERGY INC.||137.00||+2.06||+1.53%|
|XOM||EXXON MOBIL CORP.||108.06||+1.37||+1.28%|
|OXY||OCCIDENTAL PETROLEUM CORP.||63.73||+1.36||+2.18%|
In an interview with FOX Business, Adam Kobeissi, founder of financial newsletter The Kobeissi Letter, said: “Divergence in the price of crude oil and US producers is admittedly rare, but it is driven by a unique fundamental undercurrent.”
“After months of rising crude prices due to the Russia-Ukraine war and hopes of avoiding a global economic downturn, oil markets have finally peaked,” he explained. “The recent price decline appears to be based on a stronger US dollar, COVID-19 lockdowns in China, and fears that a recession will dampen demand.”
last week, the The US Federal Reserve remained committed to his interest rate hike strategy, raising the federal funds rate 50 basis points to cool inflationary pressures not seen in over four decades. Many observers expect the Fed’s policy moves to push the US economy into a recession.
Should traders buy the rumor and sell the news?
Adam Anderson, CEO of Innovex Downhole Solutions in Houston, Texas, told FOX Business on Wednesday: “Many refineries will come online in 2023 and should reduce the differential between crude oil and refined product, while cushioning the destruction of the demand due to the high prices of gasoline and diesel”. “
“It’s probably a buy the rumor sell the news situation,” he continued. “Energy stocks hold up against oil weakness as investors are pleasantly surprised by the earnings, cash flows and capital discipline coming out of the sector.”
“Despite trading at much lower multiples relative to the S&P, we are beginning to see capital discipline leading to better returns across the sector and room to re-rate higher in 2023,” Anderson added.
Energy investors ‘don’t need $100+ crude’ for better margins
Kobeissi said the European Union’s $60-a-barrel cap on Russian crude and higher-cost producers have already begun shutting down production, leaving US companies to produce oil cheaply amid fears of that lockdowns in China will limit demand and a depleted Russian production.
“On top of this, we have had some of the most compliant OPEC+ policies in decades as global supply shrinks,” he continued. “So investors see US oil as an opportunity and don’t need $100+ crude to maintain high margins.”
“Supply is constrained in large part due to political factors, but there is still hope for resilience in the demand curve in the longer term,” Kobeissi concluded.