The future price of oil holds the key to energy stock performance

Energy companies’earnings are highly correlated to the price of oil. Their stock prices reflect not only the current conditions, but also future expectations for the price of oil. At near $88 a barrel, West Texas Intermediate crude oil futures are trading below levels prior to Russia's invasion of Ukraine as consumers cut back their usage amid inflation and worries about the economy but are still about 14% above their price at the beginning of the year. The International Energy Agency cut its global oil demand forecast for both 2022 and 2023 slightly earlier in July, but the organization is still expecting growth in both time frames. Meanwhile spending by the big oil companies is expected to be down 50% compared to 2013, according to Bloomberg News. That will limit their ability to increase supply. Increased demand and limited supply could prevent oil (and energy stocks) from falling too much lower barring a major economic slowdown.