The drop in oil prices is starting to make oil stocks interesting
Oil prices have taken a 1-2-3 punch over the last three days—which is starting to make oil stocks interesting to me.
Why? Because the big punches–surveys of supply and forecasts of demand from the U.S. Energy Information Agency and the International Energy Agency, respectively–are backward looking. They reflect lower demand because of higher oil prices that peaked (for the moment) at $113.39 a barrel of benchmark West Texas crude on April 29 and at $126.64 a barrel for benchmark Brent crude on May 2. Since then oil prices have tumbled to today’s $98.95 a barrel for West Texas crude and $113.16 for Brent crude. That’s enough to lead to upward tweaks going forward in those demand forecasts—and the tweaks could graduate to revisions if oil falls further in the current commodities rout.
The third punch, hearings in Congress on cutting the U.S. oil industry’s $21 billion in tax breaks as part of any budget deal, grab headlines and allow politicians to posture for constituents, but the effects of this kind of political circus are almost always short-term.
Here’s a blow by blow of the first two punches. Read more
With Exxon and Chevron on deck, it’s so far, not so good in the oil sector
And seldom was heard an encouraging word…. At least from the oil producers and oil service companies that have reported second quarter earnings as of the close of trading on July 29.
The best news is that oil companies aren’t slashing capital spending budgets anymore. But no one is increasing them much either on the early evidence from BP (BP) and oil service companies such as Oceaneering International (OII).
We’ll know later today and tomorrow, respectively, if ExxonMobil (XOM) and Chevron (CVX), tell the same story when they report.
Typical of the sector so far is this from BP (BP) CEO Tony Hayward: “We see little evidence of any growth in demand and expect the recovery to be long and drawn out.” Read more
Next week it’s oil, oil and more oil earnings. To know where the industry is going, forget profits and look at capital spending
Exxon Mobile (XOM). Chevron (CVX). Royal Dutch Shell (RDS.A). BP (BP). ConocoPhillips (COP). Noble Energy (NBL) Apache (APA). Petro-Canada (PCZ). All these production companies report quarterly earnings next week.
Add in drilling equipment and oil service companies such as Smith International (SII), Oil States International (OIS) and National Oilwell Varco (NOV) and you’ve got quite a week for oil.
Move over technology, it’s time oil stocks get their fifteen minutes of fame. But what’s most important next week isn’t the topline earnings per share numbers that will grab the headlines. If you really want to see where the oil market and oil stocks are headed, concentrate on what these companies say about their capital spending plans for the rest of the year. That will tell you whether oil company CEOs think we’re seeing a real, sustainable economic recovery that will keep oil prices climbing or a temporary gusher that will dry up in a few months. Read more
