- A new reality in the oil patch
- Exxon Mobil will survive
- British Petroleum and Royal Dutch Shell- Wounded by not mortally
The writing was on the wall for stocks in the energy sector in 2019. As the price of shares rose to new heights, the shares of oil and gas companies lagged. Energy was consistently the worst-performing sector of the stock market. Moreover, even when the price of crude oil moved higher, the shares were underperformers.
The price of nearby NYMEX crude oil futures hit a high of $65.65 on January 8, 2020. Since then, it was all downhill for petroleum prices. The outbreak of a global pandemic weighed on the price of oil throughout February, but the international oil cartel dealt the energy commodity a severe blow on March 6. OPEC and the Russians decided to address demand destruction with a flood of crude oil.
Saudi Arabia went into the early March gathering of oil ministers favoring a one and one-half million barrel per day reduction in production. Russia would not go along, and all of the members, together with the Russians, abandoned the previous production quotas. The price of oil halved in value in March. Shares of energy-related stocks in the US may not have rallied with the price of oil, but they certainty tanked with the oil futures market.
Many debt-laden oil companies are facing bankruptcy on the back of the deflationary spiral. However, a handful may survive and could even thrive in the future.
A new reality in the oil patch
The price of nearby crude oil futures fell to a low of $19.27 per barrel on March 30. At the end of last week, the energy commodity recovered as the world’s three top producers, the US, Russia, and Saudi Arabia, were talking about a plan to stabilize the price of the energy commodity. US President Trump, Russian President Putin, and Saudi Crown Prince Mohammed bin Salman were discussing the potential for at least a ten-million-barrel per day output decline where each nation contributes. The three top producers account for over 30 million barrels per day of production. China is likely involved in the discussions.
The leading oil companies by revenue in 2018 were Chinese Sinopec with $377 billion and China National Petroleum, with $324 billion in revenue that occupied first and third place. Saudi Aramco, with $355.90 billion, was second. Gazprom, Lukoil, and Rosneft are the three top Russian oil and gas companies. The fourth, fifth, and sixth leading companies were in Europe and the US. Many of the debt-laden oil companies around the world face bankruptcy after the price of the energy commodity plunged. Meanwhile, the companies with the most robust balance sheets and government support are the likely survivors of the current challenging period in the energy business.
Exxon Mobil will survive
Exxon Mobil (XOM - Get Rating) was the sixth leading oil company in the world, with $241 billion in revenues in 2018. Exxon has a leadership role when it comes to US production. Exxon Mobil (XOM) had a market cap of $165.944 billion as of Friday, April 3, with the shares trading at $39.21
As the chart highlights, at $39.21 per share, XOM is at its lowest level since 2003. Even during the current period where crude oil companies are under siege, Exxon Mobil is the company that would be the last standing in the US and could gobble up other energy assets in the nation that currently leads the world in output.
British Petroleum and Royal Dutch Shell- Wounded by not mortally
British Petroleum (BP) was the fifth-leading oil company in the world in 2018, with $303.70 in revenues. At $24.72 per share on April 3, BP’s market cap stood at $79.483 billion.
The chart illustrates that at $24.72, BP shares were at the lowest price since 1996. BP is a public company in the United Kingdom, but it is the UK’s crown jewel when it comes to oil and gas production.
Royal-Dutch Shell (RDS.B) is the fourth-leading oil company in the world that is in the UK and the Netherlands. 2018 revenue was at the $322 billion level. At $36.24 per share at the end of last week, Royal Dutch Shell (RDS.B) had a market cap of $138.477 billion.
At $34.45 per share on April 3, RDS.B shares were at the lowest level since 2003.
Exxon, BP, and Royal Dutch Shell all traded to lower levels over the past weeks. All are trading at the lowest levels in many years. When looking for investments in the energy sector in the current environment, the most influential companies have the best chance of surviving and thriving in the years to come. Exxon Mobile’s future is crucial for US national security and energy independence. The same holds for Europe’s with BP and Royal Dutch Shell. The three companies are the best-in-breed in the oil patch. While they are not state-owned entities like the Chinese, Saudi, and Russian producers, they are as close as an investor can get to companies that have governments behind their backs.
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XOM shares were trading at $39.98 per share on Monday afternoon, up $0.77 (+1.96%). Year-to-date, XOM has declined -41.88%, versus a -18.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...
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|RDS.A||Get Rating||Get Rating||Get Rating|