NEW YORK (AP) – Falling crude oil prices and lingering worries about the global economy have been sapping power from energy stocks throughout 2023.
The sector, which includes oil and oilfield exploration companies, is coming off of two years or rising oil prices and inflation.
Now the S&P 500 has broken free from the bear market, but the energy sector is among the biggest laggards with a 7.4-per-cent dip.
“Given that energy is one of the most cyclical sectors in the market, ongoing fears of a slowdown both here and abroad are likely weighing on the price of oil and energy stocks,” said Head of Investment Strategy at SoFi Liz Young in a note to investors.
Exxon Mobil is down five per cent and oilfield services company Halliburton is down 8.4 per cent this year. Falling crude oil and natural gas prices have been among the biggest drags on the sector.
Oil prices have fallen eight per cent in the United States (US) and natural gas prices slumped 36 per cent. Prices have been falling as economic growth slows and that could remain the trend this year. The US Energy Information Administration expects weaker energy consumption in 2023 and 2024. That could mean energy companies will continue to struggle with earnings over the next few quarters. Analysts polled by FactSet expect profits to slip by nearly 50 per cent for the sector in the second quarter, followed by a 34-per-cent drop in the third quarter and a 27-per-cent drop in the fourth quarter.
It marks a reversal from 2022, when some of the biggest names in the sector notched record profits amid rising oil and natural gas prices. Exxon Mobil reported USD55 billion in profit in 2022, more than double what it earned in 2021. The company recently warned investors that lower gas prices and weaker demand could pinch margins and profits by billions of dollars.
Shell has also warned Wall Street about weakened profits during the most recent quarter.
Energy companies are expected to notch the biggest profit declines within the S&P 500. The broader S&P 500 is expected to pull out of its profit slump in the latter half of the year.
The weak energy market has been bad for investors, but good for consumers, so far. Lower crude oil prices have eased pressure on inflation, which has been cooling for months.
Gasoline costs, normally an unavoidable expense for most people, have fallen about 25 per cent from a year ago, according to American Automobile Association.
