If I'm not mistaken April crude future actually dropped today and OSX is up. Give it the first mark.
In my book it needs three straight days of inverse correlation to make me feel comfortable we have a detachment.
We have had so many one day wonders people are fooling themselves if they throw caution out the window and think this is IT.
The fact is most, if not all, drillers closed below their intraday highs (due to the morning rah-rah) tells us people are selling into strength in this relatively high volume day.
One can think of it this way - some funds are buying, some funds are selling. Remember, we have a gap up and the intraday trading range is actually narrower than it appears. This can be a number of things - new optimism, continued consolidation, selling into strength to name a few.
However, with crude continued to be weak for forseeable future, this CANNOT be the catapult platform to new highs. The upside (10-20% max) is capped unless crude moves above $17-18 based on fundamental shift (global oversupply disappears, official OPEC cutbacks). If crude is still $15 by fall, the major oil companies will have to revise their forcast and future e&p budget to less-increase, no-change or downward. The continued increase in dayrate hinges on a continued positive (positive growth rate) in e&p budget. If oil companies come out and announce a no change in future e&p budget, it means dayrate will not continue to grow. The current fear is partially this - that dayrate has reached a peak and future growth will not happen unless the net e&p budget is increased. The rig availability is part of the equation but the total number of rigs available in 1-2 years is supposed to increase (BIG DOG - right?) with the many new builds and refurbishing programs underway at the yard. If e&p budget is not increased for the next 2 years due to suppressed crude price and rig availability reaches or exceeds equilibrium, then dayrate will not be able to continue to go up. It will be lucky if they don't fall.
Again, I think the scenario we're most like to be in the forseeable future is we are going to be in the trading range for a while (said this before too many times). The downside is protected due to the low PE and strong fundamentals. But it takes the mo money to get us out of the trading range. And Mo money is looking for crude prices to provide guidance.
Now, for trading, the volatility injected new life to daytrade again. Friday is typically a profit-taking day for the drillers. So beware. Unless crude is 50 cents higher due to the imminent OPEC emergency meeting, traders will want to go dry over the weekend. |
