In the recent 52 weeks, the oil price fell to its lowest point on Black Friday. The price action marked the seventh consecutive weekly loss, resulting from a glut in supply, according to experts.
It was not so long ago that fears rose and projections of $100 per oil barrel were being discussed, but amid these forecasts, a $25 price drop or 33% decline in Brent Crude since early October to present was not seen.
As a result, shares of big oil companies have dropped along with this unforeseen decline.
From early October to Black Friday, share prices of British Petroleum (BP, Financial) declined by 14.7%, Exxon Mobil (XOM, Financial) by 11.8%, Shell (RDS.A, Financial) by 14.8%. and Chevron (CVX, Financial) by 9.1%.
In recent years, the price of Brent crude oil has fluctuated, resulting in inconsistent profit generation in these companies.
In review, the average oil price fell 33% to $37.30 in 2015, bounced back 52% to $56.80 in 2016, rose by 17% to $66.70 in 2017, and just recently fell by 11% to $59.
Meanwhile, average revenue direction for the companies from 2015 to 2017 were -35.9%, -15.2% and +23.2%. Average profit changes similarly reflected the top line performance in the same period at -94%, -26% and +276%.
At today’s oil price of $58.80, the recent price correction in the selected big oil companies should warrant a closer look, as they hover near 52-week lows, for potential long-term investment.
These companies were able to outlast and deliver solid revenue and profit growth in 2017 at an average oil price of $59 per barrel, and more importantly, were able to preserve their shareholder dividend payouts indicating resiliency during the toughest of times when in late 2015 through the early part of 2016 the oil price hovered less than $40 per barrel.
As of Black Friday, Exxon Mobil had a trailing dividend yield of 4.3%, Shell 6.4%, BP6.2%, and CVX with 3.9%.
Certainly, electric vehicles (EV) add a threat to long-term demand for oil, but with EVs representing 4% of total market share year-to-date, there are many more years to go before the commodity’s relevance to everyday life will be eliminated.
To add, Saudi Aramco's recent announcement of a $500 billion investment plan in oil-related ventures should also help mitigate fears of oil's demise.
Disclosure: Long XOM, RDS.A, CVX.
