Energy stocks are among the most ulcer-causing investments, as there is little certainty, particularly due to a trending global decrease in the reliance of oil. That uncertainty is fueled by an energy sector in a questionable period, with the advancement of clean energy sources, and troubles spewing out of large oil companies. This leaves long-established oil firms spinning their wheels in a world that is yielding to renewable energy.
Oil prices fell below $93 per barrel on Friday, April 5, which hammered the price down for a third consecutive day. On Tuesday, April 2, U.S. benchmark oil was priced at $97.19, representing a 5% decline by the end of that week. This is an industry that has in the past proven its bearish tendency, and while we have seen prices fall only recently, this appears to be the beginning of a downward trend in the oil sector. Last year alone, the oil industry fell to 13.99% return on sales, from 15.04% in the previous year. That’s not a big move, but it could be a sign of what’s to come.
In deciding whether to put your money into the sector, it’s best to take a look at the recent activities of several important players. Suncor Energy Inc. (USA) (NYSE:SU) announced in February that it won’t build its planned multi-billion dollar oil sands processor in Alberta. This is due to the lowering price of crude from the North Dakota Bakken territory. Shares of Suncor Energy Inc. (USA) (NYSE:SU) sold off by 14% the day of the announcement. In the two months following the decision, the stock has been sideways. The call to pull out of plans isn’t just an indicator of challenging times for growth for Suncor Energy Inc. (USA) (NYSE:SU), it also reveals difficult times in the industry.
Bearish patterns continue for large-cap oil companies. Exxon Mobil Corporation (NYSE:XOM) on Friday, April 5, was cleaning up an oil spill that started gushing on April 3, when it spilled a second load of an undisclosed amount of unknown chemicals at a refinery in Louisiana. The stock fell about 0.85% on the day to close at $89.01.The spill resulted in fumes entering New Orleans and various parishes, prompting both federal and state investigations. The same refinery spilled 360 barrels of crude in January. That kind of public relations is certain to bring down the stock further if the company doesn’t clean up its act, and it’s a fair analogy for what’s happening in the sector. The more frequently these oil spills take place, the more likely the public will demand cleaner energy sources.
While we’re on the subject of oil spills, I can’t help but mention the company responsible for one of the world’s largest oil spills, BP plc (ADR) (NYSE:BP). BP has recovered significantly since the 2010 Deepwater Horizon oil spill. The company seems to have moved past the nightmare, at least in the eyes of investors. Despite still paying settlements for the devastation the oil spill caused, BP plc (ADR) (NYSE:BP) is recovering. In 2010, the operating profit margin fell to -1.25%, but recovered to 10.6% in 2011. Last year, it fell to 5.25%, which is 8.74% lower than the industry average 13.99%. So despite nearly three years passing since the major spill, the stock is still trying to secure the types of profits it previously held.
Meanwhile, while oil is taking a major hit, natural gas gained 3.9% on Friday, April 5, to close at $4.10 per thousand cubic feet. The represents a 100% growth from this time last year. Still, the developments in shale has lowered natural gas prices to less than global levels. And while there is an oversupply of natural gas in the U.S., those in the Far East demand the fuel.