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US energy stocks slip as oil price drop continues to 6-year low

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August 20
7:37 PM 2015

The oil price in the global market continued to skid further on Wednesday touching a new low since March 2009 while crude inventories in the US are increasing.

As a result, the shares of US oil majors BP, Chevron, Exxon Mobil, Marathon Oil and ConocoPhillips tumbled on Wall Street. The benchmark US crude fell $1.82 to $40.80 a barrel on New York Mercantile Exchange (NYMEX).

Wholesale gasoline in futures trading on NYMEX also eased 8.8 cents and finished at $1.559 a gallon. 

With 7.2% drop, Marathon Oil Corp was biggest loser among the energy stocks. The shares were trading at their six-year low. Chevron Corp stock eased three percent, ConocoPhillips dropped 3.7% and Exxon Mobil Corp fell 2.1%. All these three energy stockswere trading at four year lows. 

The possible hike in interest rate by the US Federal Reserve in September also further spoiled the market sentiment pulling Dow Jones and Nasdaq indices lower. Dow Jones Industrial Average fell 162.61 points or 0.9% to close at 17,348.73 points and S&P 500 index dropped 17.31% to 2,07961 points and Nasdaq composite index fell 40.30 points to finish at 5,019.05 points. 

The drop in oil price is impacting energy companies' performance as they invested heavily in drilling operations for the past few years. The investment of energy companies began when oil price was hovering over $100 a barrel.

Considering this price level, energy companies have charted investment plan. The oil price drop to $40 a barrel coupled with rising crude inventories is taking a toll on the energy companies. 

The economy slowed down in China and sluggishness in Japan market have further eased oil demand. This was the major reason for the price drop in the second half of 2014 and this downfall further continued last summer.

Owing to these adverse conditions, many energy companies are stopping drilling activities and trimming the headcount. 

Generally, oil supplies ease during spring and summer as the production of gasoline increase at refineries to meet the high demand during the summer. The glut in the market and no enough demand to absorb the addition supplies is resulting pressure on energy companies. 

According to Energy Information Administration (EIA), crude inventories were up 2.6million barrels to 456.21 million in the week ended 14 August as against the projections made by analysts that there would be drop of 777,000 barrels in the inventories. The US crude imports also increased during the week by 465,000 barrels per day.

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