What happened
The broader stock market is in full liquidation on June 24 as COVID-19 cases move higher in the US. And investors are selling out of fear that the start of an economic recovery may be at risk. Oil reserves, in particular, are taking over today, with the COVID news paired by another week of data from the US Energy Information Administration. USA (EIA) showing that the oil market is still very much out of control.
Even Big Oil’s biggest actions are feeling the impact. As of 2:04 pm EDT, the following Big Oil shares have fallen dramatically:
Source: YCharts.
And that
Starting with weekly EIA data, US oil inventories. USA They continue to rise, while the demand for refined products is still well below normal levels. According to the weekly oil report, total inventories of petroleum products increased nearly 4 million barrels last week, and crude oil in commercial storage eclipsed 540 million barrels, 17% more than the five-year average.
Image source: Getty Images.
On the demand side, the four-week average of refined products supplied to the market is still 17% lower than last year’s average.
The continuing imbalance between supply and demand, coupled with a large increase in the number of COVID-19 cases in some of the largest states, is strongly affecting the oil markets today. Crude prices have been dropping steadily throughout the day, and at this time, Brent and West Texas futures are down nearly 6%. West Texas futures are now below $ 40 a barrel again, while Brent is pennies away from falling below the $ 40 level.
Now what
There is an increasing risk that the COVID-19 pandemic is about to blow the wind out of the economic recovery that many investors hoped would continue. New daily cases are at record levels in many US states. USA Several governors caution that they may need to increase enforcement of physical distancing orders and other mitigation efforts, including wearing masks in public places. We may be able to see that some states begin ordering business closings if new cases continue to grow steadily.
This is also strongly affecting oil reserves, especially when combined with the fact that EIA data shows that oil prices, and many oil reserves, may have outpaced the actual recovery in demand. The fact that oil inventories continue to grow emphasizes this point.
XOM data by YCharts
More evidence is the growing number of bankruptcies in the oil patch in recent weeks and the likelihood of increasing the amount of oil reserves that will not survive the recession without breaking.
That said, none of the Big Oil stocks mentioned above are at risk of bankruptcy. Rather, as a group, these are some of the strongest companies in the energy industry and, at recent prices, could represent decent value.
From the group, Phillips 66 and Enterprise Products Partners in particular are worth a visit. Just acknowledge that the oil recovery is likely to have multiple adjustments and starts. And as long as COVID-19 remains, it will be detrimental to the full economic recovery that would push oil demand back to pre-COVID levels.
