Energy stocks are among the most ulcer-causing investments, as there is little certainty, particularly due to a trending global decrease in the reliance of oil. That uncertainty is fueled by an energy sector in a questionable period, with the advancement of clean energy sources, and troubles spewing out of large oil companies. This leaves long-established oil firms spinning their wheels in a world that is yielding to renewable energy.
Oil prices fell below $93 per barrel on Friday, April 5, which hammered the price down for a third consecutive day. On Tuesday, April 2, U.S. benchmark oil was priced at $97.19, representing a 5% decline by the end of that week. This is an industry that has in the past proven its bearish tendency, and while we have seen prices fall only recently, this appears to be the beginning of a downward trend in the oil sector. Last year alone, the oil industry fell to 13.99% return on sales, from 15.04% in the previous year. That’s not a big move, but it could be a sign of what’s to come.
Bearish patterns continue for large-cap oil companies. Exxon Mobil Corporation (NYSE:XOM) on Friday, April 5, was cleaning up an oil spill that started gushing on April 3, when it spilled a second load of an undisclosed amount of unknown chemicals at a refinery in Louisiana. The stock fell about 0.85% on the day to close at $89.01.The spill resulted in fumes entering New Orleans and various parishes, prompting both federal and state investigations. The same refinery spilled 360 barrels of crude in January. That kind of public relations is certain to bring down the stock further if the company doesn’t clean up its act, and it’s a fair analogy for what’s happening in the sector. The more frequently these oil spills take place, the more likely the public will demand cleaner energy sources.
While we’re on the subject of oil spills, I can’t help but mention the company responsible for one of the world’s largest oil spills, BP plc (ADR) (NYSE:BP). BP has recovered significantly since the 2010 Deepwater Horizon oil spill. The company seems to have moved past the nightmare, at least in the eyes of investors. Despite still paying settlements for the devastation the oil spill caused, BP plc (ADR) (NYSE:BP) is recovering. In 2010, the operating profit margin fell to -1.25%, but recovered to 10.6% in 2011. Last year, it fell to 5.25%, which is 8.74% lower than the industry average 13.99%. So despite nearly three years passing since the major spill, the stock is still trying to secure the types of profits it previously held.
Meanwhile, while oil is taking a major hit, natural gas gained 3.9% on Friday, April 5, to close at $4.10 per thousand cubic feet. The represents a 100% growth from this time last year. Still, the developments in shale has lowered natural gas prices to less than global levels. And while there is an oversupply of natural gas in the U.S., those in the Far East demand the fuel.
Teekay LNG Partners L.P. (NYSE:TGP) is well-positioned to transport natural gas. As the third-largest independent operator and owner of a fleet of LNG vessels, TGP is positioned to be the service provider for natural gas transport out of the U.S. The company plans to expand its operations in the shipping sector, which could indicate an increased demand for natural gas. The International Energy Agency (IEA) predicted last year an increase in the use of natural gas. By 2035, the IEA stated, natural gas will pass oil as the world’s prime energy choice.
With shipments appearing to be set to rise, the demand on natural gas companies with reserves will increase. Whiting Petroleum Corp (NYSE:WLL) reported in 2009 that it has reserves for 13.9 years. The company produces approximately 20 million barrels per year, which puts the firm in a lucrative position when the demand for natural gas increases.
So where do you want to put your money? As a buy-and-hold investor, I consider it extremely important to take a look at societal trends. Oil companies aren’t doing themselves any favors with this spill-and-mop trend. That’s why I choose natural gas over oil.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned
