Are Oil Stocks Already Played Out This Year?

Transocean (RIG) is down 16% over 9 consecutive days of red. $97 is a key level of support and I am watching that carefully. Fundamentally, there is no reason for the company to go down.

Toby Shute of the Fool.com said it best:

For the first time in the company's history, the overall fleet earned average dayrates north of $200,000. The 57% rise in rates, coupled with higher capacity utilization, drove contract drilling revenues up 64% over the prior year. Field operating income, which the company defines as sales minus operating and maintenance expense, hurdled 165% higher.

RIG is trading at a PEG ratio of 0.33, with triple digit earnings growth. Oil drilling is a good business, with high demand. But I wonder if all oil stocks have been played out for the year. I had warned readers to take profits in oil refiners last month, and since then Valero (VLO) is down over 19%, Tesoro (TSO) is down over 18% and Western Refining (WNR) is down over 15%.

Perhaps it is time to sell all oil related concerns? I thought the drillers would still work, but the recent declines are worrisome, although the broader market decline could be at fault. I recommend caution here.

RIG 1-yr chart:

Comments

[Georealist]

So Faisal..What is it you ARE saying? Do you think it's time to sell...or to sell specific equities..if so WHICH?
Are you suggesting people sell at the lowest valuations we've seen in a very long while? You're going to have to doa lot better than this..honestly..your picture looks great but this post is useless.....

[FaisalLaljee]

That is exactly my state of mind - confusion. Look - oil had a double top at $78 level and so in the short-term, it is weak. However, even when oil was going up, most of the oil stocks, including refiners and producers were heading down. XOM, VLO etc. I thought the lower levels of production that XOM, CVX and COP reported, which affected their earnings negatively would cause them to invest in more drilling. So the only oil sector I like right now is oil services and drilling. I own RIG - in fact, I bought it 10% ago when it dipped to cover the gap it had formed on the GSF news. I still own it and my hope is that it does not violate the $96 level of support. At the time of the post, the stock was dangerously close to support and that is why, I advised caution. If it violates support, I would sell it and buy it back in the 80's.

[jonreagan]

I invested in this sector back in January, with buys in five stocks: COP, CVX, SLB, DO, and NE....wishing now I had sold back around July 23rd. However, the movements have been very strange over the last two weeks, as your article suggests. For example, DO and NE pretty much moved in tandem over the Spring and Summer, occasionally with identical changes up or down. Not surprising, given that both are drillers. In addition, there was usually a correlation with the price of crude.

This has all broken down lately, making a lot of us wonder who's pulling the strings...then today's WSJ (Sat., 8/11) has an article by Justin Lahart, "Why the Weak Rise, the Strong Fall.....stressed quant funds buy shorted stocks and sell their winners" ....is this the primary reason many "best of breed" stocks like Schlumberger suddenly seem to be stumbling, in spite of stellar earnings and performance?

Would like your opinion.