Oil prices are back in retreat mode, pushing energy stocks closer to clinching another year of big losses.
U.S. crude, which settled 5.8% lower at $37.65 a barrel on Monday, plunged to its weakest level since February 2009 and crossed below the $38-a-barrel mark for the first time since August. Brent crude, the international benchmark, was down to $40.70. That is also the lowest mark for Brent in nearly seven years.
The latest sharp move to the downside comes after the Organization of the Petroleum Exporting Countries held steady. At a meeting on Friday, the oil cartel did not come to a consensus on cutting production and stuck with a plan spearheaded by Saudi Arabia to leave the spigots open. The decision left little doubt in the market that global supplies will remain robust at least for the near future.
“With OPEC seeming less and less like a cartel and more like an audience with the Saudis, it is likely crude prices could fall further yet,” according to London-based IG Group.
Peter Kenny, an independent market strategist and the creator of Kenny’s Commentary, wrote in a note to clients that U.S. crude prices “will likely break $40.00/bbl in a meaningful way in the first quarter of 2016.”
Oil prices have fallen well below levels seen in early 2014, when U.S. futures traded as high as $108 a barrel. Swelling crude inventories set in motion a rapid decline in prices. OPEC, looking to defend its market share, kept output rates unchanged at a November meeting. By the end of last year, oil was trading at a 50% discount.
Energy stocks are feeling the effects of oil’s yearlong slump.
So far this year, energy is the worst-performing sector with a 19.2% drop, its steepest loss since 2008. If the red ink holds, it would be the first time that the energy sector has posted back-to-back annual declines since 2002. Energy stocks slipped 10% in 2014.
Chesapeake Energy (NYSE:CHK) has led the way, losing nearly 80% of its market value since the start of 2015. Exxon Mobil (NYSE:XOM), the largest publicly traded oil company, is down roughly 17%.
OPEC’s current policy “will continue to weigh heavily on the energy sector,” Kenny said. “As a result, it will also act as a drag on the overall market due to the weighting of the energy sector in the S&P 500.”
The oil and natural gas industry continues to slash costs. Graves & Co., a Houston-based consulting firm, recently estimated that companies have eliminated 250,000 jobs worldwide, with oilfield services firms like Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL) accounting for a majority of the cuts.