Big oil stocks not lifted by rising gas prices

Daniel Acker/Bloomberg News
The shale oil boom is creating opportunities for smaller companies such as Lufkin Industries, a maker of oilfield pumping equipment whose shares are up 21 percent this year.

Gasoline prices are soaring again, leading to predictions of a gallon reaching $4.25 by late April. As you ponder this while you’re filling up at the pump, you might be tempted to lament: If only I’d invested in oil company stocks a few months ago.

It’s natural to expect that rising oil prices would drive oil company stocks higher, but there hasn’t been a run-up in big oil stocks this year. Exxon Mobil and Chevron are only up around 3 percent, far behind the 9 percent gain in the Standard & Poor’s 500 index of large-company stocks.

The results have been far stronger for many of the smaller players in the oil business. An index of stocks specializing in oilfield services and equipment is up about 13 percent. One of the biggest of those companies, offshore drilling contractor Noble Corp., has jumped 32 percent.


The wide difference in performance among energy stocks shows how hard it is for investors to pick stocks that will benefit from a spike in oil prices, like the 11 percent surge in crude we’ve had this year.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Picking energy stocks has become more challenging because the sector has become more complex, mutual fund managers say.

New drilling technologies and the boom in production of oil from shale deposits have shaken things up, giving an edge to smaller players who are more nimble than Exxon and Chevron. Many larger players are struggling to tap new oil sources to offset production declines at existing fields.

Still, the United States is in better position than many countries to endure rising oil and gasoline prices because the shale oil boom is helping the domestic industry expand production.

It’s also creating a wealth of opportunities for many modestly sized oil companies. Baker Hughes, a mid-sized oilfield services provider, has reported annual revenue growth averaging nearly 19 percent the past three years. It has been one of the key players driving projects to tap natural gas and oil from shale rock formations in places such North Dakota, Montana, and Pennsylvania.


The boom, driven by new drilling technologies, has led some fund managers to increase their holdings of US oil stocks while cutting back on foreign ones. John Dowd runs Fidelity Select Energy (FSENX), which has returned 12 percent this year with a portfolio that’s almost entirely invested in US stocks.

Dowd notes that the United States has become one of the lowest-cost producers of oil and natural gas among countries that aren’t members of the 12-nation OPEC producer bloc. Land-based oil production is growing at about 14 percent a year in the States, fastest among countries that aren’t in OPEC.

“I think this is a trend that will be in place for years,’’ Dowd says.