Just a few comments on your views. I agree with you that the E&P are the first to benefit from higher oil prices. Well, the market also agrees with you. Look at the P/E ratio of XON (29.7) and KMG (34.3). Now look at the P/E ratios, for SDC (7.5) and for FLC (11.3). My point is: even after the recent rise in OSX stocks they are still trading at P/E ratios reflecting their expected slow recovery. This also tells me that the downside risk in them is not as you think it is. I do not expect that we will see OSX at 60 again. Surely the shorts may come, but also there must be a lot of buyers who missed the opportunity to get in early and are waiting for an opportunity to buy. The huge volume on the upside of the last two days tells me that the big money has finally endorsed this sector.
I also notice that you are preoccupied with the last three failed attempts to rally the OSX stocks. The technical picture is now totally different from these earlier attempts. Now the OSX stocks are going through their 200-day MA, before they were below the declining 200-day MA. If they just hold at or close to recent levels, then within 3-4 weeks, the 200-day MA for many OSX stocks will start trending upward. Also, for many leaders, such as SLB and HAL the 50-day MA has crossed or about to cross the 200-day MA. These are all bullish technical signs.
In summary, I believe that the major trend in both E&P and OSX stocks have turned up and while E&P may rally more, the lower P/E ratios of the OSX will limit their downside risk given the present optimism on commodity prices, especially oil, and the expected revival of the global economy, as attested by the world stock market charts that BigBull posted earlier.
If I were a CEO of an oil company, I would hedge my production for the next several months at $17 (and the oil future market is offering these CEOs the opportunity to do that) and would immediately start increasing my exploration programs this year in order to take advantage of the lower rig rates. This would be better than waiting for the "fundamentals" to get better, at which time the rig rates will be at a premium. |
