Record Insider Selling Could Signal An Oil Price Peak
Over the past few years, American companies have been repurchasing their own shares at a record clip, helping to fuel a raging bull market. After a brief pullback in 2020, buybacks hit a record $881.7 billion in 2021, good for a 69.6% Y/Y increase and nearly 10% higher than the previous record $806.4 billion set in 2018.
That trend shows no signs of reversing even in the current downmarket, with firms in the S&P 500 outlining buyback plans valued at $238 billion through the first two months of 2022, according to data from Goldman Sachs. The S&P is down 10.4% year-to-date compared to a 45% climb by the 21-member S&P 500 Energy Index in what is shaping up as a bear market for stocks. Companies tend to buy their own shares more when they believe they are significantly undervalued.
It is, therefore, somewhat ironic that insider selling has become rampant in one of the few bright spots in the market: the energy sector.
According to VerityData via Rigzone, more U.S. energy executives have been selling rather than buying stock in their companies at the fastest pace since 2012. Insider selling is typically viewed as being bearish for stocks because executives have better knowledge of their industry's cycles than most retail investors and are able to time their actions to harvest the most profit.
According to Bloomberg calculations based on regulatory filings, Hess Corp.'s (NYSE:HES) chief executive officer John Hess sold stock worth $85 million in the first quarter, marking his largest quarterly sale since 2011. Hess is one of the largest operators in the Bakken Shale, with 800,000 net acres and net production forecast to average between 330,000 and 340,000 barrels of oil equivalent per day in 2022, excluding Libya. Related: Bearish Momentum Grows, But Traders Remain Bullish On Crude
Interestingly, Hess is one of the companies that have been vocal in opposing a proposed carbon tax that could raise fuel prices and eventually hurt demand, but more of that later.
Marathon Oil Corp. (NYSE:MRO) CEO Lee Tillman sold shares worth $34.3 million during the first quarter.
Meanwhile, Chevron Corp. (NYSE:CVX) CEO Mike Wirth sold $12.3 million in the quarter, the bulk of which appear to be from share options granted in 2013 that were due to expire next year. Chevron Corp. had the highest selling volume since 2008, and Marathon the most sales since at least 2004.
Overall, U.S. oil and gas executives sold shares worth $1.35 billion during the quarter, with a record number of company heads dumping their holdings.
"Historically, oil executives are really good at getting maximum value from selling stock at the right time. The message is that the cycle here isn't going to be a long one," Ben Silverman, head of research at VerityData, has told Rigzone in an interview.
Earlier this month, Congressional Democrats accused oil bosses of "profiteering" from the Russian invasion of Ukraine, which has caused crude and U.S. natural gas prices to hit the highest levels since 2008. They have responded by saying they play no part in setting global oil and gas prices and pointed out that current low production volumes responsible for sky-high prices are largely in response to pressure to act on climate change.
At the House Energy and Commerce Committee on April 6, Lori Trahan, a Democrat from Massachusetts, accused executives of "profiting personally" from stock sales, and highlighted selling by Scott Sheffield, CEO of Pioneer Natural Resources Co.(NYSE:PXD).
In other news, the WSJ has reported that the American Petroleum Institute has drafted a proposal urging Congress to adopt a carbon tax, although members of the biggest U.S. oil industry trade group want to delay action until after the midterm elections, fearing it could alienate Republican lawmakers.
The API proposal calls for assessing gasoline wholesalers, power plants and others a tax starting at $35-$50/ton for carbon dioxide generated by the fossil fuel they sell or use, with adjustments for inflation and other factors. The draft says a carbon tax is "the most impactful and transparent way to achieve meaningful progress on the dual goals of reducing greenhouse gas emissions while simultaneously ensuring continued economic growth."
Some API members, including Shell Plc. (NYSE:SHEL) and Equinor (NYSE:EQNR), reportedly want fast action, while U.S. Big Oil companies, including Hess, Marathon Petroleum (NYSE:MPC), and Phillips 66 (NYSE:PSX) have said that a delay is needed to help the industry avoid political blowback because a carbon tax has become unpopular among both conservatives and liberals.
Currently, 69 countries have adopted a carbon price ranging from $1 to $139 per metric ton, but the U.S. has never had a nationwide system. California, which nearly a decade ago introduced a carbon pricing system aimed at raising the cost of fossil fuel, recently saw gasoline prices top $6/gallon, leading to Gov. Gavin Newsom to propose giving consumers$400 tax rebates for each car they own.
By Alex Kimani for Oilprice.com
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