Is the Oil and Gas Industry making a Comeback?

When looking at share prices, is it a good idea to invest in the energy sector (as a trader)?

The oil and gas industry has taken a serious beating in the last couple of years.

Hundreds of thousands of industry experts have been laid off, and the only “news” is about the oil price – for every little nudge in pricing, there is an explanation offered.

Over the last two days, these were the headlines:

“Oil dips on rising U.S. crude inventories and production”
“Oil Futures Maintain Overnight Gains Ahead of OPEC Meeting”
“Crude Oil Prices Mixed As Market Looks To U.S. Rig Count”

Such news is just noise and does not help with understanding the current big picture and industry trends.

How have the big oil companies been doing since the phenomenal oil price decline?

And what is their outlook? Let’s have a look how the oil price and the industry sector have been doing.

The below chart shows oil price (black line) vs. energy sector index price (gray line), starting from 2 years back.

oil price and energy industry trend chart

The oil price is still depressed compared to its former highs – while the energy index staid mainly flat. So, while there was no growth, there was no major decline, either!

But it gets more interesting when we add some major oil companies to the comparison. Here’re the ones I added:

Exxon
ConocoPhillips
Chevron
Total
Shell
BP

I highlighted the ones that did best (Chevron, blue) and worst (ConocoPhillips, orange).

energy company stock price trends

Chevron did very well in comparison to the industry index, increasing its share price by 50% over 2 years!

Most big players are crowded around the index. There is a visible correlation to the oil price with all stocks, but what is important here is the trend.

So what’s the forecast? Let’s see the trends:

energy company stock price with linear trendlines

With the 2-year trend lines in place, you can see that most large oil companies’ stocks are increasing in price, despite a downtrend for the oil price.

Does that mean more jobs, more activity, and more projects?

Not really.

The stock prices simply acknowledge the fact that oil majors adjusted their business model to the lower oil price. That means that they are operating now more efficiently and are making profits – but mostly not by increasing operations.

Here’s Chevron’s Finance Data (from Google Finance):

Annual Income Data

Chevron annual income statement chart

It shows the strong decline in revenues and profits.

Quarterly Income Data

Chervon quarterly income statement chart

The quarterly income statement looks better, but the improvements are moderate, not really justifying the stock price increase.

Here are the stock price trends for companies in the energy sector:

energy industry trends pie chart

Only 15% show a clear uptrend.

The oil crisis is not over yet! Stock traders can find opportunities for investing in oil companies, despite the low oil price. However, I consider it a high-risk investment for now.

There is no real rebound in sight just yet.