Oil Has Worst Day in 3 Decades

It’s been a tough few weeks for traders across the markets. Equities have been slammed as the coronavirus’ grip on markets has tightened and there’s been a stampede to buy treasuries and gold. On top of all that, oil is suddenly back near-decade lows after having its worst day since 1991.

The price of a barrel of the black stuff has been under pressure since the start of the year. After putting in a 25% rally to close out last quarter, crude oil had retraced about the same percentage coming into Friday of last week. Lower economic growth and falling consumer demand in the face of the Covid-19 epidemic made for softening conditions. In addition, OPEC had been unable to come to a deal with its allies concerning production cuts and concerns about a price war between Russia and Saudi Arabia had been on the boil for a few weeks. By the time Wall Street was turning off the lights for the weekend, it was down more than 10% on the day without a bid in sight.

Traders worst fears were confirmed when futures opened on Sunday evening with the news that the kingdom was slashing its prices by boosting production and crude sank an additional 33% on Monday from Friday’s close. Buyers were eventually found to be willing to step in at the $28/barrel level. To put that into context, oil was changing hands at $65/barrel as recently as January. For energy stocks that were already under pressure from the 20% market correction underway, this move has been a double punch that many were not expecting.

Chevron and Exxon Mobil Hurt

Even the big names are hurting big time. Chevron (NYSE: CVX) in particular had the dubious honor, along with Exxon Mobil (NYSE: XOM), of being at the forefront of the Dow Jones’ 1,900 point decline on Monday morning. It was only last week that the latter were named a top dividend stock of the Dow with a 6% yield.

Shares of Chevron are now down more than 30% in 2020 which is a kick in the teeth for investors who were within 6% of all time highs as recently as last summer. Exxon Mobil investors are in much the same boat with shares down over 40% for the year so far.

This kind of action will remind many of the oil market in 2014 when the US, Saudi Arabia, Russia and OPEC squared off over production cuts and helped fueled a global glut. Crude oil prices fell about 60% in 6 months then and although their range was $105 to $45, the effect on energy stocks was poisonous. Chevron and Exxon Mobile both fell 45% and 35% respectively in the same timeframe.

Consider that both stocks have shaved off that much in about as many weeks and you’ll get a good idea of the current state of play.

Both oil stocks are trading with RSIs well below 30, Exxon, in particular, raising eyebrows after Monday’s close with a reading of 12. Jim Cramer was out with bearish comments, saying that upwards of 10 oil companies could go bankrupt if low prices persist. We’ve already heard the death knell of smaller names in recent months who were unable to stay afloat with the sustained pressure.

Will History Repeat Itself?

By the time oil finally, put in a post-2014 crash low around the $29/barrel mark in the spring of 2016, it had been almost two years of declines. Prices had only barely managed to recover more than 50% of that retreat by late 2018 and are now down 60% from there alone. While the likes of Chevron have proven their ability to duck, weave and bob as the underlying asset is slammed, it’s hard to be bullish on them and their like in the face of such negative fundamentals. The energy markets are notorious for not taking any prisoners and those kinds of ruthless, ‘rip your face off’ moves are starting to filter through to some of the biggest stocks in the world.

We’re not out of the woods yet, not by a long shot.