The stock market has been through a lot over the past couple of months, but in the new year they are seeing energy stocks hit hard. Oil prices and energy companies are suffering, as the price of a barrel crashed to around $30, which is down 30 percent over the past year. This number is also off about 80 percent from the 20 year high of $145.29 set in July 2008. Is there anything that investors can do to survive the oil crash?
Why oil crash is bad for energy
With a huge dip in oil prices, several energy companies are hit hard. Exploration companies that invest in costly equipment in order to extract oil are usually the hardest hit as oil prices fall. An example of this can be seen when comparing two energy companies. Chesapeake Energy is an exploration company in the S&P 500. The S&P 500 is an index of 500 stocks that are chosen for their market size, liquidity, and industry grouping and is designed to be the leading indicator of U.S. equities. In the past year, shares have gone down 81 percent, which makes it one of the worst energy group performers. ExxonMobil on the other hand both explores, refines, and sells oil, and shares are only down 16 percent. It seems as though energy companies in the S&P 500 are being hit the hardest. S&P Capital IQ said that energy companies are expected to report 70 percent lower adjusted profit in the fourth quarter, and will continue to drop throughout the year.
Recent news in energy stocks
With the oil crash hurting corporate profits in the energy sector, we have to take a look at what is happening to energy stocks. Such low oil prices are actually raising the specter of bankruptcies in the energy sector. Energy companies such as ConocoPhillips, ExxonMobil, and Halliburton ended the day of January 20th down 4 percent each. We are seeing over a dozen oil companies having to file for bankruptcy, which can really have an impact on the global market. Although there was a slight comeback in the market, compared to how it was going midday, S&P 500 failed to stay above the 1,867 level.
What the future holds for energy stocks
It is important to not make assumptions that because the price of oil has dropped so low, a bounce back must be coming. If we see the demand of the product weaken, then prices might drop even further. Nearly all stocks have gone down in the new year and analysts have been working to figure out how to get them up. Some believe that in order for the markets to turn around, there needs to be a change when it comes to the price of oil. American oil producers are going to keep pumping, even if prices go down to $10 a barrel.
The change in oil prices might have something to do with Iran’s return to the market in recent days. This means more oil available on the global market. All we can do is wait and hope there is some kind of bounce back to bring energy stocks back up.