I can't find the exact date of the interview, maybe a week or two old. Here's another from 9/15.
Oil Stock Rebound is Just a Tease
Is this the real thing or just a head fake? During the past two weeks,
oil stocks have rebounded sharply, driven by a 7% jump in the price of
crude, to $14.50 per barrel.
This hike in crude oil prices was the result of concern regarding export problems in Russia and Nigeria, the announcement that OPEC had achieved 85% of its pledged cuts (2.72 million barrels) in August and the possibility of another confrontation with Iraq over weapons inspections.
The rise benefited all sectors of the oil industry ranging from offshore drillers like Transocean Offshore (NYSE: RIG) (up 31% from the beginning of the month) to integrated players like Schlumberger (NYSE: SLB) (up 13%) to major oils such as Exxon (NYSE: XON) (up 6%). In fact, the Dow Jones oil drilling industry group, which had been the worst-performing group out of 95 in the last 12 months, was the third best in the first week of September, up 12%.
Don't Get Too Excited
However, we think this run-up is a temporary occurrence since none of
the underlying problems affecting the industry, such as the 200 million barrels of excess crude sloshing around the world or faltering demand from Asia, have been effectively addressed.
Ken Haley, manager of energy forecasting for Chevron (NYSE: CHV), notes "Prices bounced on temporary concerns. In truth, inventories are pretty substantial around the world and there's simply no catalyst for a sustained rise in crude prices."
Philip Verleger, an independent oil industry consultant, points out "
The single most important factor driving the 2%-3% global increases in
energy consumption - economic growth in Asia and other emerging markets- has essentially disappeared because of the world currency and
financial crises of the last twelve months."
Given this fact, we think general estimates of demand growth of 1
million to 1.5 million barrels a day in 1999 might be too optimistic
and, in any event, would only represent a 1% increase over the 74
million barrels currently consumed in the world each day. Verleger is
even more pessimistic, predicting energy consumption in Asia will be
worse in 1999 than in 1998 and that Russia will push out even more oil
in 1999 than this year in order to earn more hard-currency cash.
While we remain bullish about the oil industry in the long term, we
caution investors that the current uptick being experienced by the
industry is just that -- an uptick. We don't expect that shares of
companies in the industry will slide back to their recent lows but would expect them to be "dead money" for the near- to mid-term.
Picks for the Patient
For the patient investor we continue to recommend Transocean Offshore
(NYSE: RIG) due to its deep-water drilling focus and Schlumberger (NYSE:SLB) for the synergies generated by its acquisition of Camco. |
