Oil stocks have been on a significant uptrend, but if you’re a contrarian investor, you’re probably wondering when those names will become oil stocks to sell.
The economy began recovering from the pandemic in late 2020, and almost all energy stocks have broken above their 2019 price due to fuel prices going higher. Moreover, practically all countries gave significant amounts of stimulus to aid post-pandemic growth, which elevated demand even more. This naturally resulted in energy companies being hot in the stock market. When Russia invaded Ukraine in February, energy prices increased more.
Surprisingly, this war’s effect on oil stocks was insignificant because most countries still buy energy from Russia. Many energy stocks were already on a powerful uptrend which started in January, and inflation and high fuel prices were an issue that began in the winter of 2021. Thus, most oil stocks only had around a 30% gain since the start of Russia’s invasion before they peaked.
Of course, this winter, we may see oil prices rise again if the war continues to escalate. However, if high inflation persists, the rate hikes from the Fed will likely induce an economic slowdown, which will drive down fuel prices. I have therefore found the following three oil stocks to sell before they go down more.
|OXY||Occidental Petroleum Corporation||$63.55|
|XOM||Exxon Mobil Corporation||$89.24|
Oil Stocks to Sell: Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) stock increased by more than 200% from trough to peak since the pandemic began and increased by 50% compared to pre-pandemic prices. However, the stock is starting to cool down with a 14% decline in the last three months and could lose its gains very soon.
In addition, the latest inflation report at 9.1% is also very concerning for the broader stock market. The Fed will likely accelerate rate hikes and introduce measures to keep prices low, which will undoubtedly affect CVX stock. Even if you are looking for short-term gains, the current $146 per share is not a reasonable entry price. I would also recommend taking profits on Chevron stock as it is likely facing a deep correction.
Occidental Petroleum (OXY)
Occidental Petroleum Corporation (NYSE:OXY) had already been in a downturn before the coronavirus pandemic. OXY stock reached its peak in 2011 and declined by more than 60% before the start of 2020. The pandemic made it fall by another 80% before starting the current uptrend.
I believe that Occidental stock will likely have a significant cool-off very soon. The company was deeply unprofitable before inflation struck, and its current profits could be unsustainable when oil prices start returning to normal. Thus, I do not recommend buying or holding it as OXY stock has historically had weak performance.
Oil Stocks to Sell: Exxon Mobil (XOM)
Exxon Mobil Corp (NYSE:XOM) is the largest U.S-based oil company with a market capitalization of over $370 billion. Although the large market cap could make XOM stock more stable in the short term, I believe Exxon Mobil is set to decline in the long term. Its current price cannot be sustained when energy prices inevitably go down. Since June, crude oil prices have already decreased as countries are switching to monetary tightening to reduce demand.
It is also important to remember that Russia needs to export energy to finance its war. Even if Europe and the U.S. stop buying, there will still be countries such as China buying Russian oil at a discount. That could reduce pressure on non-Russian sources, decreasing prices worldwide.
Of course, it could still take a long time for oil prices to start returning to normal. Nevertheless, high inflation and rate hikes are increasing the chance of a recession, and GDP growth rates have already begun to fall. Thus, I believe energy prices are set to return to normal once the stimulus-induced demand is no longer there.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.