Does anybody hear bears growling....????
Wednesday May 20, 9:37 pm Eastern Time
FOCUS-Oil shares slide as crude outlook turns ugly
By David Chance
NEW YORK, May 20 (Reuters) - Oil shares were hit on Wednesday as crude prices tumbled after data showed crude oil
stocks in the U.S., the world's largest oil importer, rose to their highest level since 1993.
Analysts now say that any pickup in crude prices, which hit a nine-year low March of this year, may be delayed until later
this year and companies are unlikely to see a pickup in second quarter earnings from the very depressed first quarter.
''There is not likely to be a rebound in share prices and the market for oil is very sloppy,'' said Fadel Gheit, analyst at
Fahenstock & Co.
The two oil companies in the Dow industrials were the biggest percentage losers in the index, with Exxon Corp. (XON -
news) down 1-5/16, or 1.8 percent, at 71, while Chevron Corp. fell 1-1/16, or 1.3 percent, to 81-1/8. in afternoon
trading.
ABN AMRO Inc analyst Eugene Nowak cut his earnings forecast for Chevron's second quarter to $0.70 from $0.83,
compared with a First Call consensus of $0.84, and warned that even $0.70 could prove to be too optimistic.
''Crude prices are continuing to underperform and I expect analysts to start revising down their second quarter
forecasts,'' Nowak said.
After hitting a nine year low on March 17 of $11.96 per barrel, the international benchmark Brent blend has Brent has
averaged just $14.50 so far this year, compared with $19.30 in 1997.
It took another turn down this week and remained under pressure after data from the American Petroleum Institute (API)
showed that U.S. crude oil stocks rose 8.788 million barrels in the week to May 15.
Analysts had been expecting a drop of 2.5 million barrels, according to a Reuters poll.
"There was a big build in stocks," said Nowak.
Losses among oil shares were spread across the board and the S&P Oil International Index dropped 1.08 percent to
825.92, while the Dow Jones Industrial Average was up 0.5 percent to 9100 points.
Another bid loser among the oil shares was Amerada Hess Corp. (AHC - news), which dropped 1-4/16 to 55-3/16 after
reporting yesterday that a rig being transported out to one of its biggest new fields had sunk.
ABN AMRO's Nowak calculated that this could cost Hess $0.80 per share in lost income next year if the 100 million
barrel oilfield failed to hit peak production in 1999.
Oryx Energy Co. (ORX - news), Amerada's 50 percent partner in the deepwater Baldpate field in the Gulf of Mexico was
also hit, losing 1-3/16 to 22-1/16.
Nowak calculates that delays could cost Oryx $0.75 per share at peak production.
Among other major oils, Amoco Corp. (AN - news) lost 5/8 to 41- 7/8, Mobil Corp. (MOB - news) 7/8 to 80-1/2 and
Texaco Inc (TX - news) 1/16 to 58-7/8.
Fahenstock's Gheit believes that declining oil prices will force substantial changes in the industry and says that even the
biggest companies may be hard put to fund their ambitious capital spending plans.
''If oil prices do not rebound, even Exxon will have to look at cutting back capital spending; the only company that is safe
is Royal Dutch/Shell Group (RD.AS) (quote from Yahoo! UK & Ireland: SHEL.L),'' Gheit said.
He added that oil price weakness is going to mean that many of the smaller oil and natural gas producers may not be
independent for very much longer.
''The weakest will go first. Those companies whose balance sheets are stretched will go, while those who have kept their
powder dry will be the winners,'' he said.
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