Why are oil stocks down today? Well, it sure doesn’t help, yes S&P 500 is down more than 2% so far in Friday’s session and that crude oil prices are down nearly 6%. This impact is being felt throughout the energy space today and this week.
For example, Energy Select Sector SPDR ETF (NYSEARCA:XLE) falls by 7% per day. That’s on track for its worst one-day loss since May 9, when it fell 8.4%, and is now down 10.3% for the week. Furthermore, SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP) falls by 8.4% per day.
More specifically, ExxonMobil (NYSE:XOM) fell 5.7% on Friday and is 19.6% off its high. With a market capitalization of $356 billion, Exxon is the largest energy company in the United States
A favorite of Warren Buffett Occidental Petroleum (NYSE:OXY) is down more than 5% today and almost 9% on the week. It hit its lowest level since August 9. Devon Energy (NYSE:VAT) is down nearly 10% on the day and more than 15% this week.
But the answer to the question, “Why did oil stocks fall today?” We have a somewhat complicated answer.
So why did oil stocks fall today? Three reasons
We have gone from worrying about energy supply shortages to worrying about falling demand due to the global recession.
With fears of a recession, oil prices are on everyone’s mind the lowest since January. WTI crude oil hasn’t traded below $80 since January 11, hitting a low of $78.04 earlier today.
Oil prices reached $130.50 in early March. At current prices, oil has fallen by more than $52 per barrel, or an incredible 40%.
In addition to falling energy prices, a rising US dollar is acting as a headwind – for both oil prices and stocks. As the Federal Reserve continues to raise interest rates, the dollar continues to strengthen. A strong dollar is negative for commodities and this can be seen today as oil, natural gas, copper, gold and other assets sink.
For what it’s worth, the dollar index is hitting a 20-year high.
In essence, then, it is more than just an imbalance in supply or a lack of demand. Oil and energy prices are falling on worries about the global economy and a rising dollar. And if that’s not enough, finally we have a drop in stock prices. The S&P 500 is within 1% of its 2022 low as the bear market builds and is not currently sparing any sector.
As of the date of publication, Bret Kenwell did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are the subject of InvestorPlace.com Publishing Guidelines.