Slider, I agree with your take on the volatility and buying in at current prices. It looks like Prudential Securities goes along with our belief that this rally in Oil Service is not sustainable.
"Low rig rates won't sustain oil rally
Prudential downgrades some oil services, drillers
By Emily Church, CBS MarketWatch
Last Update: 2:49 PM ET Oct 23, 1998 NewsWatch
NEW YORK (CBS.MW) -- Oil services stocks hit the skids Friday on a series of downgrades from Prudential analysts who argued, in brief, that low rig rates do not a rally sustain.
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Updated:
10/25/98 8:01:24 PM ET
The Philadelphia Stock Exchange index of oil services stocks ($OSX) fell 2.7 percent by Friday afternoon on the rating cuts, with Baker Hughes (BH) dropping 1 to 20 7/16 and Global Industries (GLBL) down 1/2 to 8 5/16.
Prudential analysts cut their ratings on Cooper Cameron (RON) and Schlumberger (SLB) as well as the drilling companies Diamond Offshore Drilling (DO), Ensco International (ESV), Marine Drilling (MRL) and Parker Drilling (PKD) to "hold" from "accumulate."
None too slick
Investors have piled into oil services stocks in the expectation that it can't get much worse for the sector, which has seen a steep business slowdown. Drilling activity is also low: Some 1,600 rigs worldwide are now in operation, the lowest active-rig count since mid-1992.
Prudential noted that the stocks have jumped since Oct. 8. Smith International (SII), for one, has seen its stock climb 62.9 percent over that period.
Also boosting the oil services stocks since early this month: a bit of an oil-price recovery. But Prudential analysts Matthew Conlan and Jeffrey Freedman said they don't think the price recovery is enough to sustain the stock rally.
Bulls avoiding the oil fields
"We are not yet approaching an environment which is likely to commence the next bull market in the oilfield service industry," Freedman wrote in a note to investors.
"OPEC [the Organization of Petroleum Exporting Countries] must exercise production restraint throughout most of 1999 to balance the market. Oil demand rates will be modest. The oil price will likely be volatile, ... and the oil industry will likely be cautious with respect to capital spending plans," Freedman wrote.
The Prudential analysts maintained "accumulate" ratings on Global Marine (GLM), Noble Drilling (NE), Rowan (RDC) and Transocean (RIG)".
Emily Church is a reporter for CBS MarketWatch.
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