Oil Stocks are Running on Fumes

Core Viewpoint - Oil prices are declining, but oil stocks have not yet followed suit, creating a favorable environment for short sellers and a challenging one for buyers [1][15]. Group 1: Current Market Conditions - The breakeven price for most U.S. oil producers is between $61 and $70 per barrel, while current oil prices are below this range, indicating a difficult situation for producers [1][15]. - Oil prices are at four-year lows, yet stock prices, particularly the Energy Select Sector SPDR Fund (XLE), remain close to their 52-week highs, only 9% off [5][14]. - The XLE fund, which includes major oil companies like Exxon Mobil, Chevron, and ConocoPhillips, is a key indicator of the oil industry and has not yet reflected the drop in oil prices [7][8]. Group 2: Historical Context and Comparisons - In 2021, oil prices rose from $47 to around $82 per barrel, while the XLE fund increased from approximately $32 to $51 per share, showing a significant lag in stock performance relative to commodity prices [8][10]. - Currently, the XLE is 73% higher than its peak in 2021, despite oil prices being lower than they were at that time [8]. Group 3: Future Outlook - There is an expectation of declining profits in the oil sector, with ExxonMobil's revenue showing a decrease of $10 billion or 3% year-over-year [13]. - The market currently holds a belief that oil prices will not remain low, but the XLE has underperformed compared to broader market indices, indicating potential for further declines [14][15]. - Fourth quarter earnings reports are anticipated to be a catalyst for stock movement, with expectations that disappointing results will lead to a shift in investor focus away from oil stocks [15].