< we expect our customers to continue a cautious approach to ... spending >
Diana; - Bingo ! - that is the next major hurdle. Given the reality of the bottomline fundamentals of earnings, dayrates, rig utilization and new project orders & purchases; how much further will the Street take Oilpatch shareprices untill they actually see two things - #1. proof of OPEC's compliance and #2 bottomline results of Crude Prices.
per the Bull:
<< I strongly disagree with his public assesment that the only force GOING FORWARD in the price of oil is OPEC. These guys only need a couple of months to sop up the "excess inventory"........ No Slider, the supply and demand reality is rapidly shifting from over supply to equilibium to deficit.>>
Big Bull - you may misunderstand; we are much closer in agreement than you realize.I think we only disagree on the ''timing'' and the ''road taken'' - not the final destination of either Crude Prices, or the OSX. I also feel that this offers tremendous opportunites to those willing, or able to trade.
I think the great story is that virtually everyone is under estimating the effect that the Global Liquidity reflation from last fall will have. Asian demand is grossly discounted - I totally agree that this will be an underestimated upside driver. Many of us were questioning the infamous ''missing barrels'' and the failure of the Market to see the trend in supply reduction, if not the entire manufactured nature of the entire ''Glut'' crisis.
Another thing I have learned is that many, many times - ''the fundamentals'' do not matter; all that matters is what those damn Crude Oil Traders and the Street does ! In that respect, we may disagree - that in the ''short term'' I feel that the story in Crude Prices is OPEC's compliance - virtually the entire story ! In fact, its all ready built into the price @ $17 - 18 imho; - we may be in disagreement there - but, no big deal... if we all agreed we would never learn anything and the world would be a boring place. Right now - the last thing that the Oilpatch is - is boring ! & Hoo Hahhh for that !
I totally agree that OPEC will comply - very religiously for a couple of months at least. However, how they comply from that point forward - depends on the price of Oil imho. If we would happen to see $20 Crude Oil - do you think Venezeula is ''not'' going to be looking real, real hard at market share and their own internal economic needs... the temptation of $20 Oil will in my opinion, be more than most OPEC countries can resist... heck, $18 Oil may be more than they can resist !.... kind of like putting a nice, hot Chicago style Deep Dish Sicilian Pizza and a Frosted Mug of Icey Cold Heineken in front of me - and saying - ''don't touch''... I won't use the Stephanie Seymour example...(VBG).
Diana's post on RIG's Talberts comments drive home reality here :
<< 'Crude oil prices have recently reached levels not seen since early 1998, suggesting there could be
an improving fundamental outlook for the offshore drilling business. However, despite the commodity price improvement, we expect our customers to continue a cautious approach to exploration and production spending until these commodity price
gains prove to be sustainable.">>
I have said all along; that without question, the Street very shortly will reach a disconnect herebetween Crude Oil Prices and shareprices in the Oilpatch - because they absolutely will reach a level where the ''sustainability'' of Crude Oil prices compared to shareprice valuations becomes paramount. As the Oil Majors & Independants will NOT increase spending untill they are 110% positive that OPEC will comply - which assures that indeed these prices are sustainable.
We are reaching levels where anyone being honest here has to admit that the full effect of $18 Oil and its spending effect nearterm on the market, is virtually entirelly priced into many stocks here. DRQ, CDIS look very richly valued. Some companies that are acknowledged top tier companies and sector leaders like SII, CAM, and WFT are no longer oversold, or value stocks by any stretch of the imagination. PE's of 30 - 40 are not value plays. While obviously, these companies have the ability to dramatically ramp up earnings on the eventual upswing of Cap Ex spending - we are now in a situation where potentially those earnings and bottomline results will not be seen for 9-12-15 months perhaps. What happens if the total market takes off towards DOW 12,000 this year and Techs resume their momenteum ? Will this dramatic shift to cyclicals and the Streets willingness to look far forward be softened ? What happens if the enivitable window of opportunity for the Short Sellers/Hedge Funds opens and the the gloom & doom ers maximize those opportunites here if OPEC stumbles and we see a brief retracement in crude prices and a delay through this entire year of any benefit of present crude oil prices on the bottom line ? Many companies are allready stating they are not projecting to receive ANY benefit of present Oilprices on the bottomline through this year ! - As such; I see no reason number one, not to be weighted heavilly into the E&Ps (they get the benefit today of present Oil prices) and not to keep taking profits on ramp ups, and awaiting those eventual if not perpetual retracements to re-enter, or to rotate into...
We are leaving the ''dart throwing'' mode - to one where being a ''stock picker'' will be paramount. The laggard list is getting shorter & shorter... how much further can SII, CAM, WFT, DRQ, CDIS go without actual fundamentals improving ? Sure, once again - the last time we had $17 Oil - the OSX was at 104. But, we did not have 40-50% rig utilization and dayrates at 1/2 of where they were and earnings are dramatically impacted here. Again the E&P's & Integrated Oils offer a much stronger fundamentally hedged bet imho.
The entire question here is how far is the Street willing to take the OSX stocks here with $16-18 Oil, but flat fundamentals of Earnings, rig utilization/dayrates, new equip & project cap ex spending ? What happens to the drillers if dayrates don't change for 2 quarters and an occassional Rig , or 2 comes off contract and is stacked ? What happens to the service/mfg companies as backlog is worked off over the next 6 months and new orders are negligible ? - while Oil Prices will have fully recovered, more importantly Cap Ex spending which determines the bottomline will not have not ?
Please, do not misunderstand where I am coming from - I see OSX 120 here - it is a ''when'' and not and ''if'' question. However - where the money will be made is in being correct on when & how we get from OSX 72 - 120 ! We've only gone a mere 24 points from the bottom - we still have another 50 to go ! So I am not criticizing a buy & hold strategy overall, but given the most volatile and range oriented trading cycyles of late - never has being a trader offered so many opportunities ! - many roads to the same destination. Some of us (traders) just get to do it 4-5-6- times instead of once (buy & holders) ! - remember the Stephanie Seymour analogy (VBG)...
Right now in the near and midterm; reading, predicting and reacting to what the ''Street'' is going to do and how they will react to events as they unfold may actually be more profitable than dwelling on Crude Prices ... the volatility is here to stay and with volatility comes opportunity !
now as far as stockpicking - ideas anyone ?
HOFF looks cheap compared to GLBL, RIG cheap to DO, OII cheap to CDIS - PGO cheap to the market ....still lots of opportunities. I would feel comfortable just ''holding'' perhaps PGO, HOFF, and even RIG here, but the SII's, WFT's & CAM's - especially if held in margin accounts - are ''traders'' imho, untill we see the fundamentals of dayrates, rig utilization and project orders from increased Cap Ex spending. How many times can people watch stocks like GIFI move from $7 to $15 - back to $10, back to $12, back to $10, back to $15 and NOT get the message (VBG) ! .....bwdik (VBG).
Service companies look cheap compared to drillers and E&P's still look real cheap compared to both... so what's the rest of the Oilpatch Gang thinking here - what are you buying, what are you holding and what are you selling ? |
