Big Oil Flat Despite Spike in Oil Prices
Fear of war in Syria has U.S. stocks selling off today, fueled by a rise in gold and oil. The Dow JonesIndustrial Average is down 1.09% as of 3:30 p.m. EDT, with 27 of 30 components in the red, while the S&P 500 has fallen 1.53%. Britain, France, Canada, the Arab League, and the U.S. urged a firm response to Syrian president Bashar al-Assad's use of chemical weapons against civilians, and that could bring the U.S. closer to an air strike -- or even war. That type of uncertainty makes investors uneasy, and that's why stocks are down today.
When there's uncertainty in the Middle East and the threat of war looms large, one of the first things to rise is the price of oil. That has helped stabilize Chevron and ExxonMobil , which are flat today. The positive here is that oil explorers are facing higher costs to find and extract oil as traditional land sources dry up, so higher oil prices will expand margins on that side of the business.
Of course, higher oil prices are only good if you can pass those costs on to customers, and concerns about that pricing power is keeping a lid on oil stocks today. You can see below that as prices have risen over the past decade, consumption has fallen, which isn't good for Big Oil.
Consumers are turning to more efficient vehicles and alternative fuels, and that will continue if gas prices spike. For Chevron and ExxonMobil, a step forward in exploration profits may be followed by a step backward in refining and retail profits. That's why the potential of war may push oil higher, though it isn't necessarily good for Big Oil.
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The article Big Oil Flat Despite Spike in Oil Prices originally appeared on Fool.com.Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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