If your portfolio is currently energy intensive or you are considering investing additional funds energy stocksYou may want to reconsider.
Because there is a very important reason to avoid holding or buying energy stocks as we enter the new year: The increasing global oil abundance.
There are currently 1.4 billion barrels of oil on the water; That is, oil is sent to a port or stored and awaits its buyer. This is 24% more than the average for this time of year from 2016-2024.
As you can imagine, this glut has driven down oil prices greatly. West Texas Intermediate oil, extracted from oil fields in the United States, is currently trading at around $57 per barrel; That’s $15 below the price it started the year with. The price of Brent, the benchmark for oil from Europe, Africa and the Middle East, is currently around $60 per barrel, $15 below its level at the beginning of 2025.
As a result, the average price of a gallon of gasoline in the US has fallen below $2.90; This is the lowest level since the Covid-19 pandemic kept everyone at home.
Falling oil and gasoline prices started to put pressure on energy stocks lower. Share price of the oil giant Strip (NYSE:CVX) It has been declining since the beginning of September and is down 9% since the last peak.
ExxonMobil(NYSE:XOM) Although it trended lower last month, it remained slightly better. ConocoPhillips(NYSE: Police) It has fallen nearly 9% since the last peak in early September.
Western Oil(NYSE: OKSİ) There is a 20% discount for the year and Marathon Petrol(NYSE:MPC) It fell 16% last month.
Essentially, most stocks in the energy sector have been moving sideways or south in recent months. And the situation could get much worse in 2026 if the global oversupply continues or worsens.
Oil industry analysts expect it to do just that. Almost all of the world’s largest oil traders expect oil supplies to increase in 2026. The International Energy Agency predicts that global oil supply will exceed demand by more than 3.8 million barrels per day next year; This will be a record mismatch between oil supply and demand.
The latest outlook from the US Energy Information Administration says that rising inventories in 2026 will put downward pressure on oil prices in the coming months, with Brent oil falling to $55 in the first quarter and remaining at this level until the end of the year.
Image source: Getty Images.
It looks like the biggest oil producers are now preparing for this. In September, Exxon announced 2,000 layoffs as part of its restructuring plan. ConocoPhillips, Chevron and more than a dozen other energy companies have announced layoffs or are already underway.
Of course, the price of oil and the profitability of oil companies do not depend entirely on supply and demand. They are also affected by geopolitical events. While increasing hostilities between the West and Russia could lead to prices rising again due to concerns about supply, a ceasefire or the end of the Russia-Ukraine war could ease these concerns and cause prices to fall further as sanctions on Russian oil end. Similar scenarios in the escalating US-Venezuela conflict could have similar price impacts. Such developments are difficult to predict.
Low oil prices are also good for economic growth everywhere; except for countries that are heavily dependent on oil exports. They are also not good for oil companies and their shareholders.
And of course, there’s a pretty accurate observation that the cure for low oil prices is low prices. That is, falling oil prices are forcing some producers to stop their projects, reduce investments in new resources or even go bankrupt. This reduces the oil supply. At the same time, low oil prices increase demand for oil and petroleum products such as gasoline because people use them more when they are cheaper.
However, these scenarios take some time to materialize. Meanwhile, oil stocks do not look promising.
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Matthew Benjamin It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips and Occidental Petroleum. The Motley Fool has a feature disclosure policy.
