Why Investors Shunned Energy Stocks Today

With a generally humming global economy and robust demand for fossil fuels, the energy industry has generally been buoyant over these past few years. This, despite the threat of inflation and the dampening effect of conflicts in several hot spots around the globe.

This wasn’t in much effect on Wednesday, though, as the usual No. 1 factor in energy-stock sentiment — oil prices — eased notably. With that, investors shed their positions in oil industry majors Conoco Phillips (COP -3.25%) and ExxonMobil (XOM -3.01%), both of which saw their prices close around 3% lower. Their Scandinavian peer Equinor ASA (EQNR -5.67%) saw a steeper fall, at nearly 6%.

The potential for peace

The price of Brent oil futures, considered a benchmark by many “black gold” investors and observers, fell by more than 2% on Hump Day. And where prices go, the values of oil stocks tend to follow.

A major factor behind the dip was the apparent advancement of peace talks in the Ukraine war. President Trump called both his Russian counterpart Vladimir Putin and Ukrainian leader Volodymyr Zelensky on the matter. Following this, Trump wrote in a posting on his Truth Social site that he and Putin “agreed to have our respective teams start negotiations immediately.”

While this is only an initial conversation on ending the war, and therefore at best only the start of an undoubtedly long process, it does bode well for a possible peace settlement. This would make the world more secure, of course, but more locally to the conflict, it would ease safety concerns for Black Sea oil shipments. Any improvement in the situation would likely ease prices too.

Macroeconomic news was also a factor in investors ditching oil stocks. The consumer price index (CPI) rose by 3% on a year-over-year basis, an uptick from the 2.9% growth in December and well ahead of the recent low of 2.4% for September.

Although higher-than-expected inflation can push up gas prices at the pump, they can also make safe-harbor investments like bonds more attractive. Since many oil stocks are blue chips, they risk getting dinged if inflation numbers are concerning and investors flock to bonds and the like.

A slump, not a depression

As they have so often in the recent past, oil stocks will probably bounce back from this relatively minor correction.

Demand remains strong, and gasoline — in many ways, the most critical petroleum product — in many markets is largely price-inelastic (i.e., consumers are willing to pay for it no matter how expensive it becomes). I wouldn’t necessarily be discouraged from owning any of these stocks because of Wednesday’s hiccup.