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Market Wrap-up for Mar. 4 - How Big Oil has Handled Crude's Collapse

Crude oil’s drop began mid-way through last year and remains one of the biggest stories on Wall Street in 2015. While many have waited for prices to recover, crude has remained stubbornly low, failing to establish any kind of momentum.

Crude is down over 50% from June of last year and its drop has many investors worried about the stability of big oil companies, many of which happen to be strong dividend payers. Here’s how some of the biggest names in oil have performed since oil began its decline:

  • Exxon Mobil (XOM ): -13.2%
  • Chevron (CVX ): -14.6%
  • ConocoPhillips (COP ): -19.8%
  • BP (BP ): -18.0%
  • Phillips 66 (PSX ): -8.7%

Luckily for investors, none of the major oil firms have seen a dip anywhere near what crude prices have suffered, but the losses are still frustrating. Oil companies can help offset lower oil prices through hedging, but that can only go so far. Eventually, low prices start to hurt profitability and ultimately the stock price. The tough question that investors need to ask themselves is, what happens if oil prices remain low for an extended period of time?

Navigating $50 Oil

There are all kinds of theories behind exactly why oil prices fell in such a dramatic fashion, but whatever the reason, investors need to be prepared if this is a new norm. With oil production surging all over the world, it is not entirely off base to think that oil will never climb to its 2008 levels again, when a barrel of crude was trading at approximately $140.

For those with holdings in a major energy firm, the threat of extended low oil prices can be a little uncomfortable. After all, lower crude means less revenues for most of these firms, which could be an issue if it is dragged out over the long term. If that is the case, look for these companies to find alternative ways to rake in more money; perhaps by focusing on more natural gas production or selling off assets (in a more long-term scenario).

The Bottom Line

Low oil certainly is not going to take down any of these giants, but it could scuff up their long-term appeal from a growth perspective. As a dividend investor you have nothing to worry about with juggernauts like those mentioned above, but smaller companies may be forced to scale back on payouts (or dividend growth) if low oil persists. Keep an eye on how oil prices play out this year, as big oil will be looking to continue to claw back the ground it has lost over the last eight months.

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