Weak Oil Prices Are Wrecking This Stock

EOG Resources [stock_market_widget type="inline" template="generic" color="default" assets="EOG" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] had a promising start to the year but weak oil prices have turned out to be a big problem for the company. EOG stock has been crashing over the past few weeks and its latest quarterly results indicate that the rot is not going to get over anytime soon.

Let’s look at EOG Resources’ second-quarter results and see why it would be difficult for the company to make a comeback in the current oil pricing scenario.

EOG Resources Has Been Hit Hard By Weak Oil Prices

There’s not much wrong with EOG Resources’ second-quarter performance. The company’s revenue actually increased year-over-year to $4.7 billion as compared to $4.24 billion in the prior-year period, while its net income increased to nearly $848 million as compared to $697 million in the year-ago period.

The company’s cash operating costs were down 7% year over year thanks to lower transportation, lease, and well costs.

This increase in the top and bottom lines was a result of a nice increase in EOG’s production. The company delivered a 20% increase in crude oil production during the quarter, but at the same time, its average crude oil price fell 10% year over year. Also, the average price of natural gas liquids was down 44%, while the decline in natural gas prices came in at 19%.

As a result of these lower prices, EOG’s adjusted net income for the quarter fell to $762 million as compared to $795 million in the prior-year period. This was despite the fact that EOG tried to keep its costs under check.

The company’s cash operating costs were down 7% year over year thanks to lower transportation, lease, and well costs. So, EOG stock fell despite the company’s best efforts to keep a handle on its costs and its production increase. The only reason behind this is the weak oil prices the company has been contending with of late, and the bad news is that the situation is not going to change anytime soon.

The Oil Price Scenario Looks Bleak

EOG Resources stock won’t be getting any love on the market as the oil price scenario is not going to turn around anytime soon. This is evident from the fact that demand for oil has fallen sharply thanks to fears of an economic slowdown.

According to data from the International Energy Agency, demand for oil has increased by just under 600,000 barrels per day in 2019. This is the weakest level of growth seen since the recession of 2008.

The US-China trade war is one of the major reasons why demand for oil has been on the wane. China was one of the key drivers for growth in oil demand, accounting for 500,000 barrels per day of oil demand growth, but the trade war has knocked the wind out of its sails.

Given all these problems, a turnaround in oil prices looks quite unlikely. As a result, it would be a good idea to stay away from EOG despite its positive results as the stock won’t be heading higher until there is a turnaround in oil prices.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


Please enter your comment!
Please enter your name here