The oil industry is going through a time of turmoil. The US sanctions on Iran and the tariff tensions between the US and China are making the global trade situation difficult, putting pressure on the energy industry. On Friday, the 25% tariffs declared by the US on $34 billion of Chinese imports went into effect and if China retaliates in kind, it could lead to an outright trade war.
China’s tariffs would first affect US agricultural exports and then oil products. Around 20% of the US’ oil exports are bought by China. If tariffs are issued, it would lead to China reducing its imports from the US. While China can compensate for its oil purchases by purchasing from other OPEC countries, the US will find it tough to get another large supplier like China. The Energy Information Administration said that for the week ended June 30, US crude inventories rose by 1.24 million barrels.
President Trump lashed out against the OPEC monopoly for price increases, following which Saudi Aramco reduced its oil prices. Saudi Arabia also has plans to increase its oil production. Trump’s tweets against OPEC have been criticized by Iran and there are experts who believe that Trump’s sanctions against Iran are likely to backfire. Several countries like India and China are likely to make alternative deals with Iran allowing them to avoid US sanctions. This will not end well for the US.
Looking at the major oil companies in the US, Chevron (CVX) has seen its stock drop by 3% so far this year. The company is looking to sell many of its North Sea assets to simplify its portfolio. This will help reduce production costs as well as allow it to focus on more profitable projects. Despite the challenges, most of the analyst firms rate this stock as a Strong Buy.
Exxon Mobil (XOM) is said to be one of the companies that will benefit the most from high oil prices. Analysts estimate that as long as oil prices do not fall below $65 per barrel, Exxon could go on to see a benefit of over 30%. The company has halted construction on its gas pipeline in Papua New Guinea due to troubles in the region. Although the stock is down 5% so far this year, analysts are optimistic about the company’s potential to weather the storms that come its way. It has been given a majority rating of Hold.
ConocoPhillips (COP) has seen its stock rise around 21% so far this year making it one of the best-performing oil stocks at present. The company has restructured its portfolio and made some good strategic deals recently. Oil formed around half of the company’s first quarter of 2018 production and this mix will help it benefit more from rising oil prices. This stock has been rated a Strong Buy by a majority of analyst firms.
All three companies received respite recently after a federal judge dismissed climate change lawsuits filed against them by two cities in California. Despite the challenges that come their way, these energy companies have managed to remain strong thus far and they are likely to do so in the future too.