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leohaas (93.24)

What is going on in Oil?

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May 22, 2008 – Comments (5)

My first pick this year was an outperform sector call on oil exploration and oil services. Oil was just crossing $100 at that point. I argued that there was nothing magical about this "milestone", and that I foresaw that oil would continue to go up long-term. I made about a dozen and a half outperform picks based on rising oil, all of them oil explorers and oil services. Today, I am closing most of those picks (all in the green, average score about 25).

It is not that I am changing my long-term view on where oil prices are going. The fundamentals have not changed. However, I am noticing something that puzzles me: even though oil prices have been leaping up over the past several days, the explorers and service companies are not going up. On top of that, refiners are going up (despite the increasing oil prices). So, I don't know what is going on here. The only thing I can think of is that short-term oil is now so much overpriced that it is due for a correction. That would explain why explorers and services are not going up, and refiners are going up, while oil is jumping to all-time highs. Didn't we see something similar when gold jumped above $1,000 not so long ago, while many gold miners failed to keep up?

I'd like to open up the forum here to find out what is going on. Provide your opion!

5 Comments – Post Your Own

#1) On May 22, 2008 at 1:06 PM, Gtrinvestor (99.88) wrote:

Refiners are going up b/c they had already been beaten down for so long... just look @ WNR, w/ a stock price at 1/6 of what it was a year ago. 

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#2) On May 22, 2008 at 1:27 PM, abitare (99.43) wrote:

The War, the levels of hostilities from Iraq have increased significantly. Sadr has 2 million followers and he wants the US out.

Watch it and then you can answer your own question:

http://iraq.liveleak.com/ 

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#3) On May 22, 2008 at 1:48 PM, leohaas (93.24) wrote:

Grtinvestor, agree on refiners. In addition, the driving season is about to start, driving up demand for gasoline. Disclosure: I own a WNR call.

abitare, what you say can explain the higher oil prices, but no so much the fact that drillers and oil service companies are lagging.

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#4) On May 22, 2008 at 2:02 PM, GS751 (28.06) wrote:

Refiners make money on crack spreads, and not just high oil prices.   Watch the crack spreads and that is when you will see COP pop.  A family member of mine trades a top of options on COP, he waits until crack spreads widen and COP runs a little then sells short term covered call's on his stock position and waits for the arb guys to make the crack spreads converge and watches the call's expire worthless.

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#5) On May 22, 2008 at 2:23 PM, devoish (98.77) wrote:

What if mastercard is correct and consumers are using less fuel. What if Ford cannot sell big SUV''s and the US mpg is going up and decreasing consumption. What if Airlines reduce their flights by 20% and their fuel consumption the same amount? What if Toyota announces its intention to increase the number of hybrids. What if my wife has reconsidered last years opinion that it was not worth her time to worry about gas, and this past weekend she was telling me it cost twelve dollars to go to our daughters soccer game. And we are top ten percent income. What if America imports less junk due to rising costs and fewer ships burn oil getting that junk here. 5 million new Chinese drivers will not make that up as they are driving fuel efficient vehicles, with higher average mpg standards than we have. What if fixed income folks turn off a few more light bulbs and greenies add a few flourescents? What if My Cousin anchors his boat instead of firing up those twin v8 fords this summer. Four bucks a gallon seems to be making a dent in the demand side of supply and demand. I cannot quantify the amount of that dent, and long term I am a peak oil believer, but I am guessing a lot of folks will sell before they have to take delivery of their oil purchases.

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