Insights

Why Energy Stocks Dropped on Monday

What happened 

Oil stocks had a rough start to the week after WTI Crude oil prices fell 4.9% to $93.82 per barrel and Brent Crude fell 3.9% to $99.87 on Monday. That pulled the entire industry down. 

Shares of oil producer Centennial Resource Development (NASDAQ: CDEV) plunged as much as 5.6% today, offshore rig owner Transocean (NYSE: RIG) fell 7.7%, and Core Laboratories (NYSE: CLB) dropped 8.9%. The stocks closed the day down 1.8%, 4.7%, and 4.9% respectively. 

So what 

The biggest economic news out today was the Institute for Supply Management’s (ISM) reading of manufacturing sentiment. The ISM’s measure of manufacturing PMI was 52.8% in July 2022, indicating slow expansion in manufacturing. A reading above 50% implies growth while below 50% indicates contraction. What was concerning is that a new order reading was 48% in July, which could be bad for future growth. 

This was the worst manufacturing PMI reading since May 2020 when the COVID-19 pandemic was in its early stages. If manufacturing activity slows down, that’s not good for oil and gas demand, which is why prices are reacting today.

Prices of futures have been below the spot price — which is what the media usually reports — for months, so it’s not surprising to see prices fall. But the market may not have been anticipating this quick of a drop. 

Now what 

The supply of oil has been slowly but surely increasing because prices have been high enough for some drilling to be justified. That’s given not only oil producers hope, but also hope for service providers like Transocean and Core Labs, who only make money when oil producers need their services. 

As much as the market may react to a day’s trading like this, I think it’s more noise than investors should be thinking about long-term. Oil producers aren’t worried about the daily swings in oil,  and I think there’s been a structural change in how aggressive companies will be investing in new production. There’s been an uptick in drilling lately, but not enough to flood the market and hurt pricing like there was in 2014, which indicates that prices should remain relatively high. That should be good for oil company operations long-term. 

I wouldn’t read too much into a single day’s trading in oil markets. Prices can move up and down wildly, and today is just a down day. I still think producers are being more conservative and won’t flood the market, even if there’s a small slip in demand. For long-term investors, this looks like a buying opportunity. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool recommends Core Laboratories and Transocean. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info