Text size
Oil prices are sliding again in early Thursday trading. The drop isn’t about OPEC or supply concerns. It’s about demand. Oil-related stocks are taking a hit, too.
Benchmark crude oil prices are down about 0.8% in early trading, their third consecutive daily decline.
Early in the week, oil traded up and down, based on what traders believed OPEC, which controls roughly one-third of global oil production, would do. OPEC output is expected to increase, eventually, in response to higher prices, but recent OPEC discussions broke down without any planned changes in production.
The OPEC issue is about the supply side of the supply/demand oil equation. Thursday’s oil decline is about the demand side of the equation. Japan declared a new emergency related to the Delta variant of the Covid virus. Rising infections rates bring with them the specter of more lockdowns and restrictions, and that’s bad for economic activity.
Oil demand went from roughly 100 million barrels a day to 80 million in the depths of the 2020 Covid-19 induced recession. Oil demand is back to about 94 million barrels a day, according to the International Energy Agency.
The Japanese emergency declaration is affecting everything. Stocks are down more than oil commodity prices. The
S&P 500
and
Dow Jones Industrial Average
are off 1.3% and 1.1%, respectively. Overseas stock markets are down between 1% and 3%.
Oil shares are getting hit a little harder than the average stock.
Exxon Mobil
(ticker: XOM) is down 1.4% in recent trading.
Diamondback Energy
(FANG) has dropped 1.8%. Refiner
Valero Energy
(VLO) is down 3.7%. Stock in oil-services giant
Schlumberger
(SLB) is down 1.7%. There aren’t many places in the oil industry for energy investors to hide.
Oil prices and oil stocks are still having a strong year. Oil prices are up about 48% year to date. Energy stocks in the S&P 500 are up about 36%.
Energy was the top-performing sector in the S&P for the first half of 2021, followed by financials. Utilities, many of which have to buy energy products to generate electricity, were the worst-performing sector.
Write to Al Root at [email protected]