Jun 23, 2022 (Baystreet.ca via COMTEX) -- The oil market is currently going through one of the most turbulent periods since the infamous March 2020 collapse, as investors continue to grapple with recessionary fears. Oil prices have continued sliding in the wake of the central bank deciding to hike the interest rate by a record-high 75 basis points, with WTI futures for July settlement were quoted at $104.48/barrel on Wednesday's intraday session, down 4.8% on the day and 8.8% below last week's peak. Meanwhile, Brent crude futures for August settlement were trading 4% lower in Wednesday's session at $110.10/barrel, a good 9.4% below last week's peak. While crude prices have taken a big hit, oil and gas stocks have fared even worse, with energy equities experiencing nearly double the selling pressure compared to WTI crude.
"Year to date, Energy is the sole sector in the green ... but concern now is that fact that Bears are coming after winners, thus they may take Energy down. The Energy Sector undercut its rising 50 DMA and now looks lower to the rising 200 DMA, which is currently -9% below last Friday's close. Crude Oil is sitting on its rising 50 DMA and has a stronger technical pattern," MKM Chief Market Technician J.C. O'Hara has written in a note to clients.
"Normally we like to buy pullbacks within uptrends. Our concern at this point in the Bear market cycle is that leadership stocks are often the last domino to fall, and thus profit taking is the greater motivation. The fight-or-flight mentality currently favors flight, so we would rather downsize our positioning in Energy stocks and harvest some of
According to O'Hara's chart analysis, these energy stocks have the greatest downside risk:
Antero Midstream /zigman2/quotes/208787863/composite AM +0.11% , Archrock /zigman2/quotes/206867288/composite AROC +0.63% , Baker Hughes /zigman2/quotes/205323712/composite BKR +1.52% , DMC Global /zigman2/quotes/202925937/composite BOOM +0.13% , ChampionX /zigman2/quotes/205349782/composite CHX -0.17% , Core Labs /zigman2/quotes/207238091/composite CLB +2.18% , ConocoPhillips /zigman2/quotes/207605056/composite COP -0.44% , Callon Petroleum /zigman2/quotes/201917664/composite CPE +1.37% , Chevron /zigman2/quotes/205871374/composite CVX +0.04% , Dril-Quip /zigman2/quotes/205108311/composite DRQ -0.05% , Devon Energy /zigman2/quotes/209479244/composite DVN +1.79% , EOG Resources /zigman2/quotes/204634330/composite EOG +0.26% , Equitrans Midstream /zigman2/quotes/205653347/composite ETRN -1.01% , Diamondback Energy /zigman2/quotes/201200230/composite FANG +2.05% , Green Plains /zigman2/quotes/204775795/composite GPRE +6.87% , Halliburton /zigman2/quotes/210488727/composite HAL +1.93% , Helix Energy /zigman2/quotes/201162236/composite HLX -1.61% , World Fuel Services /zigman2/quotes/201809068/composite INT +1.08% , Kinder Morgan /zigman2/quotes/208455654/composite KMI +1.49% , NOV /zigman2/quotes/208758290/composite NOV +1.16% , Oceaneering International /zigman2/quotes/207545163/composite OII +5.62% , Oil States International /zigman2/quotes/200852543/composite OIS +6.28% , ONEOK /zigman2/quotes/205201756/composite OKE +0.79% , ProPetro /zigman2/quotes/208880046/composite PUMP +2.18% , Pioneer Natural Resources /zigman2/quotes/206736173/composite PXD +0.67% , RPC /zigman2/quotes/201485709/composite RES +2.65% , REX American Resources /zigman2/quotes/209167968/composite REX +3.69% , Schlumberger /zigman2/quotes/201012972/composite SLB +0.35% , U.S Silica /zigman2/quotes/206361964/composite SLCA -1.68% , Bristow Group /zigman2/quotes/203753851/composite VTOL +0.47% , and The Williams Companies /zigman2/quotes/205467183/composite WMB +0.42% .
Whereas the bear camp, including the likes of O'Hara, believes that the oil price rally is over, the bulls have stood their ground and view the latest selloff as a temporary blip.
In a recent interview, Michael O'Brien, Head of Core Canadian Equities at TD Asset Management, told TD Wealth's Kim Parlee that the oil supply/demand fundamentals remain rock solid thanks in large part to years of underinvestment both by private producers and NOCs.
You can blame ESG--as well as expectations for a lower-for-longer oil price environment over the past couple of years--for taking a toll on the capital spending of exploration and production (E&P) companies. Indeed, actual and announced capex cuts have fallen below the minimum required levels to offset depletion, let alone meet any expected growth. Oil and gas spending fell off a cliff from its peak in 2014, with global spending by exploration and production (E&P) firms hitting a nadir in 2020 to a 13-year low of just $450 billion.
Even with higher oil prices, energy companies are only increasing capital spending gradually with the majority preferring to return excess cash to shareholders in the form of dividends and share buybacks. Others like BP Plc. /zigman2/quotes/207305210/composite BP +1.06% and Shell Plc. /zigman2/quotes/205095589/composite SHEL +2.71% have already committed to long-term production cuts and will struggle to reverse their trajectories.
Norway-based energy consultancy Rystad Energy has warned that Big Oil could see its proven reserves run out in less than 15 years, thanks to produced volumes not being fully replaced with new discoveries.