Why Energy Is Dragging European Markets Down
The FTSE 100 (INDEX: ^FTSE) closed down 0.56% after opening the day in positive territory. It wasn't alone among falling European indexes, as the STOXX 50 (INDEX: ^STOXX50E) fell 0.58%, as well.
What has dragged down European indexes? In large part, energy was the culprit. Total (NYS: TOT) is dealing with a gas leak in the North Sea that has caused other large companies like Shell to evacuate their own platforms. There's a reason for queasiness in the energy sector: A series of gas and oil incidents is drawing attention to the difficulties of offshore drilling.
The most notable example was in 2010, when BP (NYS: BP) -- which was among the FTSE's biggest losers at a 2.19% loss -- suffered the tragic Deepwater Horizon drilling accident. However, recent events like Chevron's (NYS: CVX) spill off the coast of Brazil have brought focus back to offshore drilling. Total maintains that the leak is at the platform level, rather than the sea floor. This differentiates it from BP's spill, which dragged on for months as engineers struggled to operate robots at that depth.
While today's 0.56% drop in the FTSE isn't significant, the energy news causing the drop is a reminder that companies within the energy space take on more risk as they move to more unconventional reserves. Chevron's leak in Brazil is estimated to amount to just a few thousand barrels -- far less than the 4.9 million that leaked from BP's Macondo well. Yet Chevron is being threatened with up to $11 billion in litigation from Brazilian authorities. The lesson? Diversification is more important than ever if you're an energy investor. That being said, with companies in the sector trading between five times and 10 times earnings, any continued drop should yield some very solid bargains for investors in the space.
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At the time this
article was published Eric Bleeker owns shares of no company listed above.Motley Fool newsletter serviceshave recommended buying shares of Total and Chevron. The Motley Fool has adisclosure policy.
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