Today, oil stocks are once again in the sights of investors. Of marathon oil (NYSE:MRO), Philips 66 (NYSE:psx) Y ConocoPhillips (NYSE:POLICEMAN) a Chevron (NYSE:CLC) Y exxonmobile (NYSE:XOM), it has not been a pretty day. At today’s lows, each of these oil companies saw their valuations drop by 4% or more.
It is truly amazing how quickly sentiment can go from ultra-bullish to bearish in a short time. Such is the case in this market. In fact, there are multiple factors driving this move in oil stocks today.
Why are oil stocks down today?
The first factor investors are pricing in is oil prices. The price of crude oil is down again today, having approached $100 a barrel this morning. Given the fact that we were trading around $120 a barrel days ago, this move will affect the forward cash flow numbers in investors’ DCF models.
Much of the decline in oil prices is due to investors forecasting weaker demand ahead. Given the speed of interest rate hikes in recent times, a growing consensus is building that a recession is likely this year or next. Such a recession, global or not, would dramatically impact the price of crude oil. No one wants to see another 2020, but that could be where we’re headed.
Another key driver is the White House push to lower gasoline prices. With a gasoline tax break potentially on the table and President Joe Biden urging oil companies to make less profit, the rhetoric from Washington is not positive for this sector. Hasn’t been for a while, but has really heated up recently.
Also, news that crack spreads are rising is bearish for oil prices. As refiners take a larger share of the total gasoline price, consumer demand could deteriorate further. Limited refining capacity and general demand are key factors that have pushed the crack spread to over $50 a barrel (that’s high).
As of the date of publication, Chris MacDonald did not have (directly or indirectly) any position in the securities mentioned in this article. The views expressed in this article are those of the writer, subject to the InvestorPlace.com Posting Guidelines.