Why are energy stocks down today?

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Energy stocks are currently in the red on an otherwise pleasant day in the markets. There is no clear driver behind today’s energy crisis. Fears of a recession, compounded by recent developments in oil production, are likely to push energy companies lower.

Recession fears and gas prices have become inextricably linked in recent weeks. Some analysts predict that rising prices at the pump could lead to a broader economic slowdown. Indeed, gasoline prices in the United States have been hovering around ten-year highs for some time now. He has been primarily responsible for the country’s currently runaway inflation. For energy companies, however, high prices have mostly been to their advantage.

Exxon Mobil (NYSE:XOM) and Devon Energy (NYSE:NDV) are up 42% and 33%, respectively, this year thanks to exorbitant margins. It comes even as the S&P500 approaching a 25% drop since the start of the year. However, as fears of a recession continue to simmer, energy companies could lose some of their growth this year.

Why are energy stocks down today?

Analysts and economists expect energy prices to fall quickly if the economy takes a turn for the worse. Not without precedent of course, the 2008 stock market crash saw gas prices plummet by more than 60% as Americans began switching to low-cost transportation like trains, buses, and even bicycles.

As such, with recession fears reaching near fever pitch this week – the S&P 500 is on track for its worst week since 2020 – some have taken a clearly bearish stance on energy companies.

Today also brought news of localized oil supply relief. This morning, Equine (NYSE:EQNR) announced a multi-year agreement with Centric supply additional gas to the UK.

Additionally, according to the U.S. Energy Information Administration (EIA) Drilling Productivity Report released earlier this week, oil production across the country is expected to increase over the next month. The Permian Basin is expected to exceed 5.3 million barrels per day (bpd) in July, up from around 5.2 million bpd currently. If the projections prove accurate, this would represent a new production peak for the largest US oil field.

The increase in oil supply reasonably proved to be a bearish indicator for energy companies which largely benefited from the shortage.

XOM and DVN are down 5.2% and 8.2%, respectively, today.

As of the date of publication, Shrey Dua did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

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