A barrel of oil Tuesday cost less than a case of beer, a cheap bottle of wine, a dozen donuts, or a 12 oz. bag of your favorite coffee.
U.S. benchmark crude was trading as low as $6.50 a barrel, the Associated Press reported, more than 80% lower than the start of the year. Americans are now looking to cash in.
“How to buy crude oil stock” and “How to invest in oil” were the most commonly asked questions on Google in a 24-hour period, coming in just above the query, “When will I get my stimulus check?”
Before you invest your $1,200 payment in these troubled times, here are five things to know about what’s happening in the oil industry and why experts say you should probably avoid oil stocks right now.
Trump plans a bailout, but lobbying groups don’t want intervention
President Trump said Tuesday he had directed his administration to find money to support the U.S. oil industry, but offered no specific actions his administration might take.
“We will never let the great U.S. Oil & Gas Industry down,” Trump tweeted. “I have instructed the Secretary of Energy and Secretary of the Treasury to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future!”
Monday night, Trump called for the purchase of 75 million barrels of crude oil to fill the federal oil stockpile, the Strategic Petroleum Reserve.
Industry experts and lobbying groups said the government should not try to interfere in the global market. The American Petroleum Institute (API), the largest oil and gas lobby, has said it’s not seeking a bailout and opposes government intervention in oil markets.
There’s likely ‘too much volatility to risk buying’
MarketWatch, a popular website providing financial information, business news, analysis, and stock market data, said there’s too much volatility to risk buying oil stock right now.
Analysts say the COVID-19 pandemic, which has significantly reduced travel, will keep the market in flux until stay-at-home orders are lifted and more people return to driving and flying. That will begin to reverse the drop in demand and bring stabilization to energy prices.
MarketWatch quoted Dan Wantrobski, a technical analyst at Janney Montgomery Scott, as saying that investors should watch out for “explosive moves” among energy stocks, but there’s just no clear picture on which direction the sector might move.
It may take years for the industry to recover
Experts at The Motley Fool, a private financial and investing advice company, say it could take years for the oil and gas industry to recover from this historic collapse.
“Is it time to buy oil stocks? My answer is, in most cases, no,” wrote author Jason Hall, calling the oil and gas industry a “minefield for individual investors” at present.
Hall said until the risk/reward profile improves for oil stocks, it may be better to play it safe and stay on the sidelines. Economic outlooks from around the globe echoed those concerns, saying Tuesday’s drop signaled the industry is in for a prolonged and widespread challenge.
This will be a step-by-step recovery process
API spokeswoman Bethany Aronhalt told the Associated Press there are several big challenges ahead in a step-by-step recovery process.
“Finding ways to mitigate dwindling [oil] storage capacity, ensuring access to capital as the economy recovers, and addressing imbalances in supply and demand will ... be crucial as the industry continues to navigate challenges in the months ahead and provides the energy to help the U.S. recover from this pandemic," Aronhalt wrote in an emailed response to the AP.
While major oil producing nations are reportedly curbing output in the hopes of boosting oil prices, it doesn’t solve the storage problem right now or address weak demand. We need to wait for stay-at-home orders to be lifted and a widespread return to business as usual. Even then, folks may not be eager to travel like they once did.
There’s still one analyst bullish on oil stocks
Bank of America analyst Doug Leggate is taking the long-term view. He told U.S. News & World Report the shortage of U.S. oil storage capacity is temporary, and he remains bullish on seven different oil stocks.
Leggate gave “buy” ratings to Exxon Mobile, Chevron, and other oil giants. He said the oil market will get worse before it gets better, but he believes demand will recover once the economic shutdown is over.
According to MarketBeat, a buy rating is given when analysts anticipate that an asset’s price will move above its current level over a period of time. Many stick to traditional “buy”, “hold”, or “sell” ratings, but others use “overweight” or “overperform” to describe what is going on with price.
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