It was a tough day across the board for oil stocks. Falling oil prices and several industry downgrades pushed stocks down hard in today's trading session.Oil has been falling sharply over the last month since briefly passing over the $80 barrier during the Lebanese / Hezbollah conflict back in July. Today oil continued its downward spiral and currently the precious crude is trading at $67.50 a barrel. There are a lot of reasons why oil has been on the slide lately, but mainly it comes down to supply and demand. Well lately we have seen that the supply / demand picture is not quite as fragile as analyst's had been thinking. Inventories have actually been on the rise lately but I doubt anyone has been expecting to see crude oil sliding down towards the mid $60's so quickly.
Another key reason as to why oil has been falling has been the lack of any major hurricanes this season. Around the middle of the summer all we were hearing about was how this hurricane season was going to be a tough one, and possibly even worse than what we experienced last summer, and that just hasn't turned out to be the case. Not only have we yet to experience any major storms, weather experts have now reversed their opinions and are calling for a very weak season ahead of us. While that is encouraging news for the country, it has hit oil stocks pretty hard. It wasn't too long ago that most stocks were approaching or setting new highs, and now it feels like the rug has been pulled out from under us.
We have also hit the end of summer, which means the end of the heavy driving season. Last week I wrote a piece discussing how and why many experts are expecting to see falling prices at the pumps over the next couple of months pushing the price of gasoline down around $1 to a national average of about $2 a gallon. Once again great news for the nation, but not so great for oil stocks.
The obvious question becomes, how much lower can things go? Technically speaking, that is a tough question to answer at this time. While instinct tells us that the market has to bounce sooner or later the bounce may be coming later than oil investor's are hoping for. Taking a look at a current chart for oil there doesn't really seem to be any sort of support level at this time. With rising oil inventories, the ending of the summer driving season and weaker than expected storms on the horizon it is tough to find a reason to believe that we could be seeing any sort of bounce any time soon.
Let's take a look at a chart for oil to better illustrate the current trend. As you can see it is not a pretty picture:
While I still remain bullish on the oil industry long term, the short term is not looking so rosy. We should get a better picture of the current supply / demand picture tomorrow when the Department of Energy releases its next weekly report on the nation's fuel stockpiles.
Today however, oil stocks took a double hit. Not only were oil prices on the slide, but Citigroup Inc. (C) came out with a series of downgrades that sent the industry tumbling. The investment firm downgraded Sunoco Inc. (SUN) to a hold from a buy on the basis of deteriorating refining margins and cut it's rating on Valero Energy (VLO) to a hold while lowering their price target on the stock a pretty hefty $14 taking their estimate down to $65 from $79. Both stocks were sold off heavily on the day.
On Wall Street today:
- Sunoco Inc. (SUN): -5.6% to $67.24 down $3.98
- Valero Energy (VLO): -4.9% to $53.02 down $2.73
- ExxonMobil (XOM): -1.9% to $67.18 down $1.30
- Chevron Corp (CVX): -1.7% to $65.22 down $1.12
- BP p.l.s. ADR (BP): -2.4% to $66.93 down $1.67
- Oil Service Holders Trust (OIH): -3.9% to $135.50 down $5.43
Michael Fowlkes has worked as a stock trader for 7 years and spent the last 2 years working as an analyst and portfolio manager for an online investment advisory service.
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Reader Comments (Page 1 of 1)
9-10-2006 @ 10:48AM
christian said...
A lot of speculative money was invested in call oil futures, because the played the hurricane card. Now they liquidate their positions, the oil price is falling. A slowing economy in the US is also bringing the prices down.
But be aware of a possible Iran conflict. I think Israel will be involved with the Iran first and maybe later the US. You can imagine what this means for the price of oil!