A pair of worse-than-expected quarterly reports from oil majors fueled declines in energy shares on Friday, even as the broader stock market climbed into the close of trading.
The S&P 500 energy sector dropped 0.7% for the session, the worst performance of any sector in the index. The
S&P 500 index
itself closed with a 0.8% gain, outperforming the
Dow Jones Industrial Average’s
0.4% advance. Tech stocks rallied after a series of strong earnings reports from industry giants, helping drive the
1.5% Friday gain.
(ticker: CVX) and
(XOM) both missed Wall Street’s forecasts in their latest quarterly reports on Friday. Chevron stock fell 2.7% after it posted a wider-than-expected loss and wrote down the entire $2.6 billion value of its operations in Venezuela. Exxon also reported a disappointing loss, and less revenue than expected. Its shares ticked up 0.5%, however, as executives said the company could exceed its targets for cost cutting in 2020.
Energy shares have been struggling since the coronavirus pandemic first prompted widespread lockdowns in March.
The sector’s creditworthiness continued to decline in July, according to Credit Benchmark, a firm that tracks global financial institutions’ internal credit ratings for companies, rather than the ratings assigned by third-party firms such as Moody’s and S&P. Oil-and-gas companies’ credit quality declined by 5% in July compared to June, the firm said. Those companies’ credit-quality declines are even more severe over a longer period of time: The sector’s creditworthiness has deteriorated more than 25% since March, and 37% over the past year. In short, that means that companies in the oil-and-gas sector are seen as more likely to miss a debt payment compared to just one year ago.
“Problems in credit quality abound, yet few sectors are seeing deterioration like the U.S. energy sector. Supplies remain elevated as demand remains lower, and the economy remains weakened as new Covid-19 cases surge throughout the country,” wrote Credit Benchmark.
(DNR) became the latest oil-and-gas company to default on Thursday, when it filed for chapter 11 bankruptcy. The filing brings the default rate for junk-rated energy companies above 15%, the highest since 2017, according to credit-ratings firm Fitch. About one-fourth of high-yield-rated exploration-and-production companies have defaulted over the past year, Fitch says.
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