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$25 Billion Created While $11 Billion Destroyed: What’s going on with energy stocks?
(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)
On Tuesday, Chevron indicated it would write down assets by $10 billion to $11 billion to reflect lower energy prices and decreased expected asset returns. The write-down would be one of the largest on record, rivaling some of the write downs taken by large banks during the financial crisis. On Wednesday, Saudi Arabian oil company Aramco raised $25.6 billion in an IPO of 1.5% of the company’s stock. The new Aramco stock rose 20% in the first two days of trading on the Saudi stock exchange and ended with a market value above $2.0 trillion, making it the most valuable public company. So how should an energy investor view these two events? Does the Aramco IPO show that there is demand for energy stocks, or is it drawing investors away from other energy stocks? Does the Chevron write down indicate further weakness in the sector, or has the market already factored the asset value decline given recent underperformance?
Source: CNBC, XLE Energy Index versus SPDRs YTD