Investors sold shares of companies with ties to oil drilling in the Gulf of Mexico as the industry came under greater scrutiny as oil from a massive spill reached the marshlands of Louisiana.
Shares in Apache (APA) sold off, which is probably unfair as they drill in shallower water and are exposed to less risk of a similar incident. Even very diversified supermajors weren't immune to the selloff today. Chevron (CVX) was down even though it doubled its Q1 profit:
Chevron Corp. said Friday its first-quarter profit more than doubled as oil prices soared over the past year.
That first sentence is the only excerpt we need from that article as it highlights a salient point about resource exploration. The single most important determinant of a natural resource company's market value is the current market price of the commodity it produces. Subtracting a company's cost of extraction from the value of its economically recoverable proven reserves yields a rough estimate of the company's intrinsic value.
The price of oil is currently over $86 from expectations of stronger economic growth. Anything that disappoints those expectations, like continued weakness in GDP growth or consumer sentiment, will hurt the price of oil and the value of companies pumping it.
Full disclosure: No current position in BP, APA, or CVX.
