What You Need to Know About The Rise and Fall of Energy Stocks

by | Aug 25, 2015 | Financial Featured

Energy stocks have jumped. The sector has jumped massively in recent months, as much as 3 percent for companies like Exxon Mobil and Chevron. US crude oil closed at $44.96 a barrel in early August and Brent crude also rose to $1.80 a share, closing at $50.41 in London.

Precision Castparts Biggest Gainer

Precision Castparts, recently acquired by Warren Buffett’s holding company Berkshire Hathaway, was the biggest stock gainer in the SP 500. Their stock jumped 19 percent, which resulted in a $37.2 billion deal, which includes the company’s debt. Unfortunately, the Federal Reserve may raise interest rates, which should have a negative effect on bull-market stocks, whose rates have been close to zero for the last six years.

Oil Won’t Stay High

According to Bloomberg, even though oil is on the rise, it won’t stay that way. Prices are expected to fall, as economies begin to slow. It’s estimated that the Organization of Petroleum Exporting Countries will boost their production to 33 million barrels, and with demand not meeting supply the result should be oil closing in the stock market at a lower level.

“Oil has lost about a third of its value since June,” according to a CNBC article that reports that the oil bear market will end in a panic liquidation. “US oil production is at record levels and producer costs appear to be declining, with no output scale back anticipated.”

So, what does this mean for investors? Well, it actually means very little. The Federal Reserve Bank of Cleveland studied the movements of the price of oil and how it affects the stock market. The result of the study suggests that analysts can’t rely predict how stocks will be affected in regards to the changing oil prices. The best investors can do is watch how powerhouses, such as Berkshire Hathaway, are reacting to the changing market, and invest their funds accordingly.

Pay Attention to Media

Remember the BP oil spill? You can learn a great deal about the rise and fall of stocks by paying attention to news regarding energy companies. NYSE:BP fell significantly after the oil spill, and BP reported significant losses in its second quarter following the spill. The company lost $5.8 billion, which is significantly greater than the previous year’s second quarter, when the company reported $3.4 billion in profits.

Energy stock investors are urged to follow energy companies in the media. That way, you’ll be well aware of any loss or gains on the horizon. Imagine if you’d learned about the BP oil spill before it became worldwide news, which resulted in failing stock prices. You’d have sold high before the stocks began to drop after BP spent more than $9 billion in provisions and more than $18 billion in oil spill settlements.

The Bottom Line

According to Sleek Money, “Energy experts are estimating that the global oil market is currently oversupplied by about 1.5 million barrels a day.” This oversupply is expected to continue throughout 2016. Production is also up in Brazil, Canada, and Russia, so check out these markets for your investment opportunities as well.


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