Lower crude oil prices could save Americans money at the pumps, and provide investors with an entry point on some attractive energy stocks. The current downtrend is hurting the markets for both crude oil and energy stocks, but the volatility will be temporary.
Oil stocks fell sharp Friday, reaching their lowest levels since 2017. Between oil falling, tech stocks slumping further, and low trading volume over Thanksgiving, the Dow Jones Industrial average began the week down an additional 175 points.
While the price of oil falling off is good news for American consumers, energy stocks are feeling a hit ahead of the December 6 OPEC meeting. West Texas Intermediate, a benchmark for Oil prices, dropped to just below $51 a barrel and Brent dropped past $60 a barrel. This marks seven straight weeks of price declines for both benchmarks.
The market reaction was reportedly a result of reports on expectation-beating supplies of U.S. crude oil, hence WTI trading below Brent.
BP, Chevron, Exxon Mobil, and Occidental Petroleum all slipped on the falling price of crude: BP dropped 3.34 percent, Chevron dropped 3.38 percent, and Exxon Mobil dropped 2.67 percent.
In the December 6 meeting, OPEC and other major oil producers will meet to decide on whether to cut output levels in response to President Trump’s exceptions against Iran and the falling price of Crude. The date marks an end to uncertainty, which could taper the market’s downtrend, according to Neil Massa, a senior equity trader at Manulife Asset Management.
“If we get clarity on any of these – oil prices, trade war with China and the Federal Reserve’s rate of monetary policy tightening – we could go a long way towards making investors comfortable in investing in the market,” said Massa.
However, leading into the OPEC meeting, the market may continue to be volatile, as traders keep the uncertainty of the international trade market in mind.
“I have to say that the speed in which the oil market has declined has surprised me even as OPEC and non-OPEC members discuss a production cut,” said Andrew Lipow, who is the President of Lipow Oil Associates. “The market does not think it will be enough.”
Until the OPEC meeting, investors should expect volatility in energy stocks related to crude. The good news is that this volatility should give way to a great buying opportunity on established, high-yield dividend stocks.
Occidental Petroleum, ExxonMobil, and Chevron all had impressive dividend yields before the recent slump, and the falling share price has pushed those even higher. All three companies have detailed plans and proven experience in operating in a low-cost oil market while both staying profitable and keeping dividend yields high for their shareholders.
In addition, BP, which also offers an incredible dividend yield, recently began production at a new oil field. The Clair Ridge oil field in the North Sea’s West of Shetland Area includes a new pipeline and is expected to recover 640 million barrels of oil.
“Aided by the innovative use of technology developed in the UK and a strong UK-based supply chain worth £1.5 billion,” said British Energy Minister Claire Perry.
“This will allow the North Sea to continue to be a hub for the high-skilled, well-paid jobs at the centre of our modern Industrial Strategy.”