Is This Oil Rebound for Real? TODAY
I. I. A N A L Y S I
By Glenn S. Curtis (3/10)
Oil stocks have rallied over the last week on reports that OPEC nations will cut production when they meet around March 23rd. Crude oil prices are already up 16% this year to over $14.00 per barrel. And oil stocks have responded in kind. The AMEX Oil Index, a price weighted index of 16 companies involved in the exploration and production of petroleum rose from 377 on March 2nd to 425 yesterday.
From large oil companies such as Exxon (NYSE: XON), to equipment outfits such as Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL), to service companies like Global Marine (NYSE: GLM), and Halter Marine, the rally has been across-the-board.
Industry bulls are now making a case for the price of a barrel of oil to return to the mid to high teens. They figure OPEC members now see the devastation that cheap oil can bring to their economies.
It's important to remember, though, that no near-term catalyst exists to spike the price of oil higher. In recent months, these spikes have been short-lived, as the reality of a worldwide glut of oil has been unavoidable. However, many analysts are now pointing to a rebound in Asia as the trigger for higher demand, and eventually higher prices. For the long-term investor, it may be time to go bargain-hunting.
Though ongoing woes in the oil patch could force weaker players out, the stronger players appear poised to survive, and eventually flourish anew.
A favorite idea: Halter Marine. Though the company has already been through the ringer, thanks to underpriced contracts, it has the ability to win several large contracts, thanks its to double hull fuel transport ships. And, insiders have been buying the stock, indicating their faith in the company's long-term potential. Again, investing in the oil patch is not for the weak at heart.
Bottom Line: Short-term investors may profit from a March 23rd announcement of a production cut. But, the effects of this cut, in terms of its reflection of the potential for sustained profits still remain unclear and will be lagging at best. To profit from this sector, focus on the longer-term prospects (meaning 1 to 3 years). This will give the industry a chance to rebound from the current glut. |
