Oil driller stocks have long been a favorite of hedge funds (and Karen Finerman of "Fast Money") and something of a proxy for expected movements in oil prices. During the huge oil spike last year, the Oil Service HOLDRs (ETF) (NYSE: OIH) Oil Services ETF shot the moon. Buyers bid up issues of the underlying companies based on expectations that persistent oil prices in excess of $100 per barrel would make exploration and extraction of hard to reach deposits financially viable.
Now that oil is back in another bull run it would seem that drillers are a good bet. That's why Finerman and others have gone long Transocean Ltd. (NYSE: RIG), the largest deepwater driller and the one best positioned to capture any increase in drilling rig prices in the near future.
But the Piqqem Sentiment on RIG has actually dropped by 7.5% in the last week and here's why we think that's happening: this oil market may be a bit more nuanced and hard to predict. First, the global recession and diminished consumption could continue to keep oil prices lower. Second, in hindsight it became very clear that during the last oil price spike a lot of the upward movement came from the cratering dollar and from pure speculation on the part of institutional investors.
While the dollar may be cratering again, speculation on commodities is significantly tempered due to the simple fact that no one is handing out leverage any more. And with regard to the dollar and its falling valuations, reversing that fall could happen on a dime as investors again embrace thinking that the U.S. currency is a safe haven in these troubled times. All of this conspires to keep a lid on market expectations for drillers like RIG.
Alex Salkever is the Director of Research at Piqqem.com, a stock prediction community powered by the Wisdom of Crowds.
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Reader Comments (Page 1 of 1)
5-26-2009 @ 8:25PM
Benjamin said...
Alrighty it works like this..... Companies can drill all they want to... Opec just tells them how-much they can barrel and market per year....
Hybrids are already on the market.Talk of placing a m.p.g. cap on autos .
Tons of cars out there averaging from 26-45 m.p.g. .So the cost of oil is going to fall.... One day it'll be back to $0.25 a barrel.
Dunno when but it will no-longer be amongst top commodities.Wheel-bearings need grease..... Electric engine shaft-bearings need grease.Thing is you can get 380,000 miles of use from well packed wheel-bearings.