Identifying the key driver
In this final part of the series, we’ll look at Noble Energy’s (NBL) stock price movement with respect to energy prices, the dollar index, and the broader market.
As the above chart shows, Noble Energy’s stock price was following an uptrend between June 2012 and June 2014, when NYMEX (New York Mercantile Exchange) WTI (West Texas Intermediate) crude oil prices were also following an uptrend. NYMEX WTI crude oil started its fall in June 2014, and that’s when Noble Energy’s stock topped. Since then, both NYMEX WTI crude oil and Noble Energy have been following a downtrend.
Clearly, crude oil is a key driver behind movements in Noble Energy’s stock price. Noble Energy and crude oil have declined by similar magnitudes, by ~66% and ~60%, respectively, since their peaks in June 2014. Upstream companies Pioneer Natural Resources (PXD), EOG Resources (EOG), and Occidental Petroleum (OXY) are down ~50%, ~42%, and ~35%, respectively.
Effect of stronger dollar
As seen in the above chart, there is an inverse relationship between Noble Energy’s stock price and the dollar index movements. Noble Energy has international operations, so when the dollar index gets stronger, its earnings are lower.
Comparison to broader market
In 2015, Noble Energy underperformed the SPDR S&P 500 ETF (SPY). Whereas the S&P 500 remained almost flat, Noble Energy lost ~29%.
Noble Energy has good quality oil and gas reserves and efficient and very low-cost production capacity. Unfortunately, its recent reserve acquisitions came with a heavy price tag, which diluted shareholders’ equity and increased its leverage. Also, the acquisitions may have been poorly timed, as crude oil prices have been following a downtrend continuously since. The key for Noble Energy is that energy prices exit this cyclical bear market.