Take a look at the chart below. It shows the percentage change in crude oil prices versus oil company stocks for the past five months. The red line shows crude oil prices. The Amex Oil Index (blue line, ticker: XOI) represents stocks of 13 oil companies, such as Exxon, BP and Chevron.
You can see that crude oil prices jumped 48% since mid-December 2008. The Amex Oil Index however, has fallen by close to 6% in the same period.
No gains for oil stocks despite oil rising
Under normal circumstances, this would be a strange thing. But in the current climate, this actually makes sense. Flailing demand, the price of oil being still-too-low and the worldwide recession all drag on oil stocks. And Christof Ruhl, chief economist at BP, told Reuters only today that spare capacity in oil markets could weigh on the price for years to come.
Oil fell by two-thirds in five months last year as demand started to plummet. This has led OPEC to cut supply in a bid to stem the price slide. They long for a return to the heady days of July last year, when oil was knocking on $150 a barrel.
As for where oil heads now, most experts see support for oil prices, provided supply is curbed and inventories remain low.
Of course, when demand does return, oil will be squeezed higher – and eventually the oil companies will follow.
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