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WTI oil prices dropped 3% on the week, affecting stocks like EOG

Ingrid Pan, CFA

Why energy commodities like oil and gas took a bearish turn (Part 2 of 4)

(Continued from Part 1)

WTI crude oil prices traded lower last week

On April 25, the price of the WTI crude front month contract closed at $100.60 per barrel, 3% lower than the $104.30 per barrel close the week prior. The drop in prices was partly because the market experienced a larger-than-expected inventories build, pushing the total crude inventories to 397.7 million barrels, the highest recorded level since the U.S. Energy Information Administration (EIA) began tracking weekly data in 1982. Under pressure from the highest inventory levels, the market weighed on WTI prices. As a result, WTI crude prices finished 3% lower on the week.

WTI crude prices over the past year have remained relatively high and stable

For most of the past year, WTI crude oil has been range-bound between ~$85 per barrel and ~$110 per barrel. Higher crude prices generally have a positive effect on stocks in the energy sector. The graph below shows WTI crude oil price movements compared to the Energy Select Sector SPDR (XLE)—which tracks companies from the oil, gas, and consumable fuels industry and the energy equipment and services industries and EOG on a percentage change basis from January 2007 onward. The movements have been in the same direction for the past couple of years.

Crude oil prices are a major driver in the valuation of many energy investments. Oil prices affect the revenues of oil producers, and consequently the amount of money oil producers are incentivized to spend on oilfield services. WTI crude is a significant benchmark tracked by investors with domestic energy holdings in companies such as Chesapeake Energy (CHK), EOG Resources (EOG), Pioneer Natural Resources (PXD), and Range Resources (RRC). Plus, crude prices can have a significant effect on energy ETFs such as the Energy Select Sector SPDR (XLE).

Read on to the next part of this series to find out about important changes in natural gas prices.

Continue to Part 3

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