Wade: Keep in mind that Unocal is now a true E&P player, and hence totally exposed to oil price fluctuations, unlike before when the downstream "ball and chain" provided a cushion to falling oil prices.
Some analysts are expecting oil prices to fall $1-$2/bbl in the next month due to the imminent flow of Iraqi crude exports. The reason is rather complex, but very predictable: Iraq is chasing a total cash target mandated by the United Nations (not a total production target), and they've already lost 2 months out of their allotted 3-month export window due to administrative haggling with the UN over aid distribution. Because of these constraints, Iraq will be forced to ship much higher levels of crude into the export market than last year just to even get close to the cash target they've been allowed by the UN. Unfortunately, the increase in exports will temporarily flood the market, driving crude prices down, and forcing Iraq to ship even more crude to generate the same revenue level. The net effect is a downward price spiral. (IMO this was a stupid political agreement obviously developed sans input from an economist.)
Given the short-term oil price outlook, I fully expect most of the E&P stocks to fall in sympathy with crude prices in coming weeks, as they have often done historically. However, the effect should be short-lived (maybe just 2-3 months?), given that the oil price drop is being driven by an artificial supply/demand anomoly.
I think these background issues must be taken into account when considering Unocal as an investment vehicle at this point in time.
Maybe if the lawsuit isn't settled quickly, you'll get a better price for the stock in a few more weeks once crude prices have fallen?
Razor |
