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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: SargeK who wrote (33251)12/21/1998 10:11:00 AM
From: SJS  Read Replies (1) of 95453
 
Sure it is...
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OIL PRICES. The end of the military action against Iraq without any effect on Iraq's oil infrastructure has oil prices back in a downtrend. Brent oil is down below $10 a barrel to $9.85. This is a far cry from the $30 per barrel days of the late 1970's oil crisis. Lower oil prices have a generally positive impact on stocks because of lower inflation and thus lower interest rates. However, for oil companies and oil services companies, lower oil prices means a difficult environment. The continuing fall in oil prices makes those $15 to $18 per barrel forecasts by Wall Street for 1999 look increasingly questionable. It also raises serious questions about the earnings rebound forecast for oil companies. For example, the consensus forecasts call for Chevron to have a 24% gain in earnings in 1999. Texaco is forecast to post a 37% gain, and Phillips Petroleum a 32% gain. The story is similar for oil services companies. Yet, oil prices will be starting 1999 below the average for 1998. A sharp spike in prices sometime in 1999 would therefore be required to have 1999 prices average more than 1998. With Japan in recession, and U.S. industrial production now slowing down, demand is not likely to pick up much. Supply conditions aren't likely to change much either, given recent inaction from OPEC. Briefing.com is therefore skeptical about any major increase in oil prices next year. Those profit forecasts have to come down so long as oil prices stay even flat, much less drop further. As a result, Briefing.com has the oil services sector rated underperform (4) for the near term outlook. The outlook for oil prices, and even commodity prices as a whole. simply remains weak. For many, this is good news. For some, it is bad news.
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