Falling crude oil prices and lingering worries about the global economy have been sapping power from energy stocks throughout 2023, reports the Associated Press.
The sector, which includes oil and oil field exploration companies, is coming off two years of 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% 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,” says Liz Young, head of investment strategy at SoFi, in a note to investors.
ExxonMobil is down 5% and oil field services company Halliburton is down 8.4% this year. Falling crude oil and natural gas prices have been among the biggest drags on the sector.
Oil prices have fallen 8% in the U.S. and natural gas prices slumped 36%. Prices have been falling as economic growth slows and that could remain the trend this year. The U.S. 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% for the sector in the second quarter, followed by a 34% drop in the third quarter and a 27% 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. ExxonMobil reported $55 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. Read more.