The World's Crude Oil Production: Who's Happy and Who's Not?
(Continued from Prior Part)
4Q15 crude oil prices
In 4Q15, crude oil prices fell 17.9% to $37.04 per barrel from $45.09 per barrel in 4Q14. The average price of oil in 4Q15 was $42.25 per barrel. The average oil prices were $73.19 per barrel in 4Q14. The record low oil prices are affecting the earnings and revenues of oil and gas companies. Earnings of oil and gas companies are expected to fall 75% year-over-year.
Oil and gas producers’ earnings and revenues in 4Q15
Earnings of S&P 500 companies in 4Q15 will be impacted by the rising dollar, lower crude oil prices, and slower economic growth. Earnings are expected to decline by 5.4% according to FactSet estimates. The energy sector was the laggard, dragging down the performance of the S&P 500 (SPY), according to preliminary estimates.
The sector level performance suggests that the Energy and Materials sectors could report the largest fall in earnings year-over-year. In contrast, the Telecom Services sector could post the highest earnings figures year-over-year. Many companies are expected to beat EPS (earnings per share) estimates, but they may not be able to beat the sales estimates due to the possible dent in the global economy.
Sales in the energy sector are expected to fall by 35% in 4Q15 when oil prices were 40% lower than 4Q14. If we were to remove the energy sector from the S&P 500, we would see its revenue increase by 0.9% compared to a fall of 3.5% in 4Q15. You can read more about the negative catalyst and API crude oil inventory data in the next part of the series.
Historic low oil prices benefit oil refiners such as Tesoro (TSO), Valero Energy (VLO), and Phillips 66 (PSX). In contrast, lower oil prices negatively affect the earnings of oil producers such as Murphy Oil (MUR), Devon (DVN), ConocoPhillips (COP), and Pioneer Natural Resources (PXD).
ETFs and ETNs such as the Vanguard Energy ETF (VDE), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the VelocityShares 3x Long Crude Oil ETN (UWTI), and the First Trust Energy AlphaDEX ETF (FXN) are influenced by the ups and down of the oil market.
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