Oil Prices Extend Declines. What That Means for Energy Stocks.

Oil prices have declined for three straight months.


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After posting a third consecutive monthly decline in August, oil prices have started September in similar fashion, sliding more than 2%.

West Texas Intermediate, the U.S. benchmark, traded at $87.42 a barrel early Wednesday, down 2.4% on the day. WTI crude has now fallen close to 10% since settling at $97.01 on Monday. 

Brent crude, the international benchmark, was 2.5% lower at $93.28 a barrel, more than 9% below Monday’s closing price of $102.93. 

“The big drop in crude oil prices this week appears to be largely seasonal and based on recession fears emanating from Asia and Europe,” said Louis Navellier, founder of Navellier & Associates. He noted that Russian crude oil exports to Asia are now at a five-month low, having fallen by more than 500,000 barrels per day.

The recent drop in oil prices is unlikely to stop energy stocks being the ones to watch when earnings come around, Navellier said. “In the midst of the upcoming ‘earnings drought,’ I expect that energy stocks will be more important than ever, since the energy sector is the only sector that is not characterized by analyst earnings estimate cuts and will post the strongest sales and earnings for the next two quarters, regardless of this week’s drop in crude oil prices.”

U.S. oil stocks have been among the best performing on the


S&P 500

this year, including the top performer



Occidental Petroleum

(ticker: OXY), which has gained 145% so far in 2022. Aside from rising oil prices, the company has also benefited from Warren Buffett’s growing stake. Buffett’s



Berkshire Hathaway

 won approval last month to boost its current 20% stake to up to 50% of Occidental stock.

Oil and gas producer



Hess

(HES) has climbed 63% so far this year, while



Marathon Petroleum

(MPC) has gained 58% and



Exxon Mobil

(XOM) has risen 56%.

The resurgence of Covid-19 and lockdown measures in China, sparking concerns over weakening oil demand, is another factor in oil’s recent moves lower. Chengdu, a city of more than 21 million people, announced a lockdown on Thursday from 6 p.m. local time. “Covid has reared its menacing head again in China sending fresh jitters through financial markets about the weakening global economy. That’s reflected in the price of oil,” Hargreaves Lansdown analyst Susannah Streeter said in a note Thursday.

The prospect of further rate hikes by central banks, as they move to fight inflation, has raised concerns over the global economic outlook and also has contributed to declines for oil.

U.S. Treasury Secretary Janet Yellen said Wednesday she was “optimistic” about an international agreement over a price cap on Russian oil exports. The G-7 group of nations said in July it aims to have a price limit in place by Dec. 5. The finance ministers of the seven countries, which include the U.S., Canada, the U.K., Germany, France, Italy and Japan, will discuss the cap in a meeting Friday.

Write to Callum Keown at callum.keown@dowjones.com

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