NEW YORK (AP) — Falling crude oil prices and lingering worries about the global economy sank energy stocks’ energy throughout 2023.
The sector, which includes oil and gas exploration companies, is emerging from two years of rising oil prices and inflation.
Now, the S&P 500 has broken free of the bear market, but the energy sector is among the biggest laggards with a 7.4% drop.
“Given that energy is one of the most cyclical sectors in the market, lingering fears of a slowdown here and abroad are likely weighing on the price of oil and energy stocks,” said Liz Young, chief executive. investment strategy at SoFi, in a press release. note to investors.
Exxon Mobil is down 5% and oil services company Halliburton is down 8.4% this year. Falling crude oil and natural gas prices have been one of the main drags on the sector.
Oil prices fell 8% in the United States and natural gas prices fell 36%. Prices have fallen as economic growth slows and this may continue to be the trend this year. The US Energy Information Administration expects lower energy consumption in 2023 and 2024.
This could mean that energy companies will continue to struggle with earnings in the coming quarters. Analysts polled by FactSet expect a nearly 50% decline in profits for the sector in the second quarter, followed by a 34% drop in the third quarter and a 27% drop in the fourth quarter.
This marks a reversal from 2022, when some of the biggest names in the industry posted record profits amid rising oil and natural gas prices. Exxon Mobil made $55 billion in profit in 2022, more than double what it earned in 2021. The company recently warned investors that lower gas prices and lower demand could reduce margins and profits of billions of dollars. Shell also warned Wall Street of weakening earnings over the past quarter.
Energy companies are expected to experience the largest earnings declines within the S&P 500. The broader S&P 500 is expected to emerge from its earnings slump in the second half of the year.
So far, weakness in the energy market has been bad for investors, but good for consumers. Lower crude oil prices eased pressure on inflation, which has been slowing for months. Gasoline costs, normally an unavoidable expense for most people, are down about 25% from a year ago, according to AAA.
The impact of lower gasoline prices goes beyond simply relieving pressure on inflation and could be a bulwark against a recession and benefit economic growth.
“At a time when we worry about the ability of consumer spending to drive growth, the less consumers have to spend on energy, the more they can spend on other things,” Young said.