For Immediate Release
Chicago, IL – April 29, 2016 – Today, Zacks Equity Research discusses the Oil & Gas, (Part 3), including Comstock Resources Inc. (CRK), Warren Resources Inc. (WRES), Western Refining Inc. (WNR), Valero Energy Corp. (VLO) and Marathon Petroleum Corp. (MPC).
Industry: Oil & Gas, part 3
Link: https://www.zacks.com//commentary/79500/market-dynamic-for-these-energy-stocks-only-getting-worse
The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess. However, fundamentals suggest that the odds are firmly stacked against a sustained rally and point toward ‘lower for longer’ crude price expectation. In fact, some industry observers feel that the door is open for one more retest of the recent multi-year lows.
Beware! More Oil Producers Face Delisting
A bunch of cash-strapped, over-leveraged oil exploration and production (E&P) companies have been warned by the New York Stock Exchange (NYSE) or Nasdaq that they face delisting for not keeping their stock price above $1.00.
While a brief rally has helped U.S. oil price rebound from its 12-year low of $26.21 reached in Feb, at slightly under $40 a barrel they still remain around 35% down from 2015 highs and far below the breakeven price for many energy companies.
While all crude-focused stocks stand to lose from falling commodity prices, companies in the E&P sector are the worst placed, as they are able to extract less value for their products. Consequently, with oil prices recently collapsing to their lowest levels in years, upstream firms have seen their revenues, earnings and cash flows have been hit hard. This, in turn, has unnerved investors and sent shares skidding to penny-stock territory.
While it's possible these stocks stage a turnaround from their embarrassingly low share prices and avoid the ignominy of delisting, the industry outlook appears to be bleak for this to happen.
In particular, we suggest avoiding exposure to Comstock Resources Inc. (CRK) and Warren Resources Inc. (WRES).
Estimates Crash for Downstream Operators
Till recently, U.S. downstream (refining and marketing) stocks were seen notching up healthy gains and earnings beats. This is because the companies use oil as an input from which they derive refined petroleum products like gasoline, the prime transportation fuel in the U.S. Hence, lower the oil price, higher will be their profits.
But with the cost of gasoline, heating oil, and other refined products catching up on the beaten down crude price, crack spreads (or refining margins) are under pressure. This is expected to impact the refiners’ near-term profitability.