Where's Teddy when you need him? From thestreet.com.(His bud, Mavis)
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Top Stories: Oil Notebook -- Crude Rallies; Estimate Cuts Start to Come In
By Mavis Scanlon
Staff Reporter
6/4/98 4:50 PM ET
Those oil ministers are at it again.
OPEC and non-OPEC oil ministers are reportedly meeting Thursday afternoon in Amsterdam to discuss cutting up to 500,000 barrels of oil from the world market. News of the meeting pushed crude oil contracts for July delivery up as much as 67 cents, before settling back to up 33 cents to $15.14 per barrel near the close.
Oil service stocks rallied on the news as well -- the Oil Service Index was up 3.09, or 3%, to 101.73 in late-morning trading on the news.
The meeting of top oil ministers from OPEC members Saudi Arabia and Venezuela and non-OPEC Mexico comes on the heels of bearish crude oil and related product inventory data released Wednesday from the American Petroleum Institute. Although crude stocks dropped by 1.98 million barrels over last week to 347.5 million barrels, that level is still about 24 million barrels above the same period last year.
But though news of the meeting, which was reported by Reuters late Wednesday evening, has spurred buying, it was greeted with skepticism from traders.
"It's creating buying interest and short covering and pushed the market up at the open, but in the grand scheme of things not much has happened," says Scott Ryll, an analyst and trader at GSC Energy in Atlanta. "Rumors of a meeting taking place were out there anyway, but what kind of lasting impact it will have remains to be seen."
Prior to this report, traders and analysts expected additional cuts in world production to be announced at OPEC's full ministerial meeting, scheduled for June 24 in Vienna. Indeed, the consensus has been that world producers must take some type of action to cut production to stabilize prices and ease the glut in world oil supplies.
But Ryll says all OPEC members have to be in agreement before any further cuts can take place, and he does not believe the OPEC ministers have had time to orchestrate an agreement among all members since the last round of cuts were announced in March.
That announcement boosted prices as well, but so far actual cuts in production have been lower than the announced levels. If, in fact, cuts of 500,000 are agreed upon, that would bring the total level of production reduction up to about 1.4 million barrels -- about the level of cuts initially announced in the first pact.
The price increase is a reactionary move, says Tom Bentz, senior vice president of energy at Cresvale International in New York.
But it does "put a temporary floor in the market," he added. "Prices won't go back to $14 before the meeting -- the range is going to $14.75 to maybe as high as $16."
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The end of the quarter is approaching -- and all too quickly. As it nears, analysts are talking to oil service companies and getting a feel for where estimates need to be trimmed.
One area is the supply boat segment. Fears of eroding dayrates and oversupply of marine service boats in the Gulf of Mexico market are keeping investors away from Tidewater (TDW:NYSE), even as a rally (for today, anyway) is underway in the sector.
Tidewater is down 1/16, to 36 9/16.
On Wednesday, Johnson Rice analyst Joe Agular reduced his dayrate expectations and earnings estimates for Tidewater, which has, according to its 10-K, the world's largest fleet of offshore supply vessels serving the energy industry. In a separate note, he also reduced dayrate expectations and earnings estimates for Trico Marine Services (TMAR:Nasdaq).
Citing conversations with company management, Agular reduced his third- and fourth-quarter average dayrate expectations for Tidewater's 180- to 190-foot supply boats to $7,250 for the third quarter and $7,000 for Tidewater's fiscal fourth quarter, which ends in March 1999. For Tidewater's fiscal year 2000, Agular's dayrate assumption remains at $7,000. Recent contracts have been signed at $7,500; this is down from the $8,500 rate that has been prevalent in the market since earlier this year. Dayrate expectations for Trico were identical.
Agular has shaved his earnings estimates for Tidewater as well -- to $3.83 for fiscal 1999 from $5.10 and to $3.93 for fiscal 2000 from $5.17. His fiscal 1999 estimates by quarter are 93 cents, $1, $1 and 90 cents, respectively.
He's kept his buy rating on the stock, however, saying fallout from dayrate reductions has already been priced into the stock. In addition, Tidewater's international business remains strong. Johnson & Rice has not performed any underwriting for Tidewater.
Trico, trading up 5/16, or 1.8%, at 17 3/4, remains a buy on his list. The company's Saevik Supply division has strong exposure to the North Sea market, where dayrate and utilization rates remain strong. Johnson has performed underwriting for Trico.
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