Start the conversation
In June, West Texas Intermediate (WTI) hit a three-year high of $103.66 per barrel. By Tuesday, it closed at its lowest price in more than three years, at $77.19.
At one point during the day, it dipped as low as $75.84. That's a 27% drop in just over four months.
Brent crude prices are falling as well. The global benchmark dipped near $82 per barrel Tuesday - its lowest level in four years.
There are several reasons oil prices are down:
- A global supply glut sparked by booming U.S. output, particularly in Texas and North Dakota.
- A consistent drop in global demand since June.
- Saudi officials' unwillingness to curb production. As the largest exporter in OPEC, Saudi Arabia is determined to maintain its global market share by cutting prices. The goal is to force the United States to cut production. We'll get an update on this strategy when OPEC meets on Nov. 27.
Crude oil prices will remain low as long as the United States and Saudi Arabia maintain their current production levels.
This week, Goldman Sachs (NYSE: GS) released one of the most bearish estimates for crude prices in 2015. They expect WTI at $75 per barrel and Brent at $80 in Q1.
Here's a look at how these different oil stocks will be affected...
Fracking Companies Feel the Heat
Some of the biggest losers from dropping oil prices are major oil frackers.
Money Morning's Global Energy Strategist Dr. Kent Moors, who has more than 35 years of experience in oil and gas policy, explained it like this:
"The projects that are now falling off are the unconventional (shale and tight oil), deep horizontally drilled, fracked wells that are more expensive to develop. And while these projects have the potential to produce large volumes, they cost millions to complete.
"Projects like these make perfect sense when oil prices are above $100 a barrel," continued Moors. "At those levels, economies of scale take over and improve profit margins. The higher production volumes offset the higher operating costs."
Take a look at the recent performances of these major fracking companies. Since June 26, Pioneer Natural Resources (NYSE: PXD), which operates in Texas' Eagle Ford Shale, has dropped 26%.
Meanwhile, the Dow Jones Industrial Average is up 3.4% and the S&P 500 is up 2.9% in that span.
For an industry snapshot, take a look at the Market Vectors Unconventional Oil and Gas ETF (NYSE: FRAK). The ETF has 66 stock holdings, many of which are fracking companies. Since late June, it's down almost 25%.
While fracking stocks should be avoided right now, the following oil stocks have presented incredible entry points for investors...