I'm doin' young Theodore's jus once more. From Street.com:
Top Stories: Old Worries Anew in the Oil Patch
By Mavis Scanlon
Staff Reporter
5/18/98 7:29 PM ET
The usual suspects are back in the oil patch.
Southeast Asian troubles have increased short-term uncertainty for investors in crude oil markets and the equities that follow them. Then there's the oversupply of crude (which could grow in the short-term due to Indonesian problems), by now an old saw among traders and analysts. And the June crude oil futures contract expires Tuesday.
All that adds up to selling pressure in the crude market. And sell they did. Crude for June delivery slid below $14 for the first time since March 17 before rebounding to settle at $14.07, down 40 cents. The July contract lost 21 cents to close at $15.11. Now, just as in March, the focus of the crude oil market turns to OPEC, though bulls and bears alike shy from trying to call OPEC's next move.
"It's tough to get inside their minds in detail," says Tim Evans, senior energy analyst at Pegasus Econometric Group. "What I'd be looking at is the July contract and how does the July contract perform after June expires. That would tell me whether the recent weakness is solely an expiration event or does it really confirm whether there is too much supply."
At that point, it becomes a game of chicken, Evans says. If prices fall to lower levels, OPEC would feel more pressure to make further cuts in its production. It actually would return the market to the position it was in back in March, when a near-10-year low in oil prices provoked a surprise pact among OPEC and non-OPEC countries to shave more than 1 million barrels a day from world oil output. (The original announcement called for a cut of between 1.5 million and 2 million barrels)
But once again, the question becomes, At what price would OPEC feel pain?
"We're testing the OPEC threshold again," says Tom Bentz, senior vice president of energy at Cresvale International in New York. "They have a chance here to stop the bleeding." Bentz says that although the market is near a bottom, he does not see futures prices taking out the old low of $12.80, which is what prompted the OPEC action in March.
Fifteen-dollar oil worries most investors in the sector, says Rob Shoss, and energy analyst at Aim Capital Management. And what's not helping is the "potential for another Asian debacle," he says. But if you believe in the longer-term fundamentals of the industry, then it's easier to overlook the short-term gyrations in the crude market. Shoss declined to discuss specific stocks, but is always looking to pick up a bargain. "We're sitting where we are unless there is a good opportunity," he says.
Oil service stocks followed the dip in crude prices, taking hits in all segments, signaling a trimming of positions. The Oil Service Index closed at 110.18, down 2.57, a level last seen April 27.
The only investors not in pain today as the OSX lost its gains of the past several weeks were the shorts.
Mark Zinn, a trader at Charter Capital in Ft. Lauderdale, Fla., says he made a bundle Monday shorting several major oil service names, such as Dresser Industries (DI:NYSE), Weatherford Enterra (WII:NYSE), Smith International (SII:NYSE) and Schlumberger (SLB:NYSE).
Schlumberger, or SLOB, as it is affectionately (or maybe not so affectionately these days) called, fell 1 13/16, or 2.2%, to 79 7/8. Smith, target of merger speculation in the wake of sector's recent megadeals, fell 1 7/8, or 3.3%, to 54 7/8.
Zinn said he heard an industry bull on TV Monday say, "Based on $16 oil, we think it's the best group in the world," referring to oil service stocks. "Well, guess what?" Zinn says. "Oil is not $16 -- it's trading at $14."
His blunt view stems from a firm belief that the oil service group, a group based on a commodity, doesn't deserve the market multiples it's being given. "The fantasy that [oil service stocks] have decoupled from oil prices was proved wrong today," he says. |
