Economic Cooling Sends Energy Lower

Brittney Barrett  |

For the first time in over 30 years, energy stocks experienced nine consecutive sessions of losses. The sector faced an army of opponents on Wednesday as crude oil stockpiles climbed 1 million barrels to 355 million and gasoline stockpiles added 1.7 million barrels to 215.2 million. Analysts had predicted only a 100,000 barrel rise. Beyond the influx of crude, which led oil down to $92 a barrel, claims of a slowing U.S. economy have been increasing in frequency and conviction. Economic cooling, inferred by the months of flat consumer spending, would weaken demand for oil.

Even positive economic data that could work in favor of oil; the passage of the U.S. debt-ceiling plan for instance, is doing little to deter the downward trend among energy stocks. Even more oil specific data, like the positive earnings report from Exxon (XOM) could not overcome the obstacle facing the sector today. Exxon reported earnings growth of 41 percent in the second quarter from the year-ago period, crediting the increase in profit to improved realizations from upstream activity. Upstream growth though, was not without its challenges; the company noted a higher proportion of natural gas driving earnings lower than they would have been otherwise. Exxon announced plans to ramp up its liquids portfolio in order to counter the problem, but it failed to convince investors. The oil and gas behemoth’s report that its downstream and chemical businesses experienced only moderate growth as a pitfall of the global macroeconomic weakness during the quarter was enough to deter even energy bulls today, pushing shares slightly lower.

Other large-caps to take a hit today included  Marathon Oil Corp. (MRO), shares of which tumbled alongside crude prices, unimpressive earnings and consequential downgrade from Credit Suisse to neutral. Net income for Marathon actually rose for the quarter, but investors saw the spin-off of Marathon Petroleum Corp. as more responsible for the rise than the internal health of the company. International weakness for quarter, coupled with the news of the economic slowdown led investors to ignore Marathon’s claim that the shortcomings overseas had been corrected. The Credit Suisse report, in which analyst Edward Westlake recommended, “a 12-month wait before MRO can demonstrate execution in onshore liquids,” appeared to hold more clout in trading Wednesday.

The extent of Marathon’s losses could largely be pinned on the negative attitudes on Wall Street today as oil and gas stocks that released no news today also fell. Powerhouse, Chevron Corp (CVX) slid beneath its 50-day moving average today in trading, mirroring the losses in crude oil. Weatherford International (WFT) also fell significantly lower in spite of releasing earnings that exceeded analyst expectation last week and being favored by oil bulls.

An upgrade on Cameron International (CAM) by analysts at EVA Dimensions last week may look regrettable following the recent performance of the stock. Even the U.S. government’s decision to drop a potentially costly investigation regarding compliance with the Foreign Corrupt Practices Act, which bars companies from bribing foreign officials, failed to relieve investors.

One of the few energy companies to buck the overarching trend today was Constellation Energy  Group Inc. (CEG). The Baltimore-based company, which conducts its business through three channels including new energy, generation and Baltimore oil and gas, ticked slightly higher in spite of weak data. The company lowered its financial forecast and fell short of net profit expectations.



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