Gas prices have been dropping since summer. In many places in the United States, the price has been below $3 a gallon for several weeks, but last week the price finally dropped below $3 in places where it always seems to be highest. In some places, the price of a gallon of gas is closer to $2.50, and it doesn’t seem to have bottomed out.
Consumers grew accustomed to $100-plus price tags for barrels of oil; crude oil prices currently are around $80 a barrel and still dropping. Oil futures for December delivery were at $77 on Tuesday, the lowest in more than three years, and oil prices struggled even more after the announcement of Saudi Arabia’s decision to cut prices for customers in the United States.
On Wednesday, oil prices did go up, briefly, after reports that a Saudi pipeline had exploded. Initially, there was concern about the oil supply being disrupted, but the fire’s damage was limited, and it doesn’t appear likely to have a long-term effect on gas prices.
Even so, Americans are conditioned to be wary of the lower prices. They expect them to go up sooner or later, probably sooner. “Many,” wrote the Washington Post’s Danielle Paquette, “see the recent price drop as a rare bonus with good timing. A common sentiment: Celebrate, but don’t get used to it.”
The same thing could be said of oil stocks, the prices of which have been depressed in recent weeks. They won’t stay that way forever, and savvy investors may want to act quickly to take advantage of the oil stocks’ gloom.
New Jersey-based Exxon (XOM, Financial), for example, traded for $102.98 per share in July. The price was $95.15 early Wednesday, a drop of more than 7%. Exxon, which operates through three segments, Upstream, Downstream and Chemical, diversified considerably in the third quarter, mitigating the impact of lower oil prices.
A dozen of the gurus we follow at GuruFocus traded in Exxon stock at the end of June. The stock was a new buy for Jim Simons (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio); John Hussman (Trades, Portfolio), Richard Pzena (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio) and David Dreman (Trades, Portfolio) added to existing holdings.
Robert Olstein (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) reduced their holdings in Exxon; Bill Nygren (Trades, Portfolio) and Chuck Akre (Trades, Portfolio) sold all of theirs.
California-based Chevron (CVX, Financial) sold for $131.18 in July; it was selling for $116.59 early Wednesday. That is actually a rebound from the day before, but it is still a decline of more than 11% compared to the July price.
Brian Rogers (Trades, Portfolio) was the only guru we follow who traded in Chevron in September, and he reduced his holdings. Nine gurus actively traded Chevron stock in June. Chevron was a new buy for Jim Simons (Trades, Portfolio); Jeremy Grantham (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio) and David Dreman (Trades, Portfolio) added to existing stakes. John Hussman (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Manning & Napier Associates reduced their stakes; Tom Gayner (Trades, Portfolio) sold all of his holdings.
Last week, Canada-based Suncor Energy (SU, Financial) reported a sharp decline in profits in the third quarter. Suncor stock sold for $42.05 in July. Like Chevron, Suncor’s price rebounded early Wednesday, but, at $33.91, the price is still down nearly 20%.
Six of the gurus we follow traded in Suncor in June. It was a new buy for Ken Heebner (Trades, Portfolio); Warren Buffett (Trades, Portfolio) and Ray Dalio (Trades, Portfolio) added to their holdings. Jim Simons (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) reduced their stakes; Louis Moore Bacon (Trades, Portfolio) sold out.
Three factors seem to be combining to restrict oil prices. Thanks to shale drilling, oil supplies are high; demand, meanwhile, is low, and a steadily strengthening American dollar is keeping commodity prices down.
Other oil stocks to keep an eye on are three Texas-based companies: Patterson UTI Energy (PTEN, Financial), Pioneer Energy Services (PES, Financial) and Emerge Energy Service (EMES, Financial).
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