Too Soon to Re-enter Oil Stocks?

Is it to soon to re-enter oil stocks? Oil stocks are down 11% year-to-date and down 21% from the year high established on May 20, responding to the 20% drop in oil prices.

Yesterday, IEA, the International Energy Agency, raised its forecast for global oil demand in 2009 and said that it expects Chinese oil consumption to rise after the Olympic Games. This might be a good backdrop to an oil stocks recovery.

But how have oil stocks performed so far this year?

click to enlarge

From this list of 20 of the main oil stocks, only Devon Energy (DVN), Halliburton (HAL), Weatherford (WFI) and Chesapeake (CHK) are up for the year, but they are way off their highs.

Yesterday, crude oil fell to a 14-week low on speculation that the dollar will continue to strengthen against the euro, so things look, at the surface, not so good for oil stocks; but as Rockfeller once said, “the time to buy is when blood is running on the streets”. And if you buy the smaller ones, like Anadarko (APC), Chesapeake (CHK) or Devon (DVN), you might even be buying a possible takeover target in a cash rich industry that can see some consolidation soon.

As Jim Rogers says, the trick in investments is to buy low and sell high. Oil stocks seem low now, don`t they?

Disclosure: I don`t own any shares directly in the stocks mentioned above, but I manage a fund in which we have long positions in energy.

Comments

[Ozarker:]

Yes

2008 Aug 13 10:40 AM

[gap:]

A very helpful analysis of companies in the USA oil industry, enabling a brief comparison of the many competing companies.

2008 Aug 13 10:45 AM

[longoil:]

Perfect time to buy; Low stock prices, end of summer driving season is near and winter heating season will begin soon. Historically, late August to early September are excellent entry points for oil stocks.

2008 Aug 13 10:55 AM

[CPST1:]

Add bio fuels because of mandates to the blend and the margins change drastically because, by law, certain fuels used for transportion are required to use ethanol. There is a reduction for gas and not for ethanol. Most ethanol is transported by rail before blending and crop (ethanol) harvest yields are expected to be at record levels this year. The jump in oil price has not withstood its value and instead reduced its demand.

2008 Aug 13 11:05 AM

[Maxroom:]

Not exactly sure why CHK is listed among the "oil" stocks. Sure, it's energy, but it's not exactly "small" either.

But, in any case, I agee that it's a perfect time. I just added to my CHK holdings this last week - and I'm already in positive territory.

2008 Aug 13 11:10 AM

[dramzi:]

I can't object to the notion of buying them while they're low, but call me a pantsy. This feels like catching a falling knife. (I have a new knife set, VERY sharp, maybe that's why I'm worried....)

2008 Aug 13 11:38 AM

[cook503:]

There may be demand destruction in oil, but not in natural gas. In fact, we're going to see demand for natural gas increase in the coming years since it is more cost efficient than oil at current prices and also far more environmentally friendly. I'd load up now, but this is for the long term; don't expect 40% returns in a month or two.

2008 Aug 13 02:28 PM

[Gigem77:]

Thanks for the chart.

Demand for energy is not destroyed, it is subdued or supressed. As prices fall, demand comes back. The EIA data show that over the past 4 weeks demand for gasoline rose week over week. Equilibrium, minus a bunch of speculators, is going to be re-established north of 100 and possibly 110 in oil. Once that becomes apparent the market will take off the discount currently applied to that list of stocks.

2008 Aug 13 10:14 PM

[robc935:]

Glad to hear cook503 is going to load up on nat'l gas, it's not like half the country heats their homes with it and the price has already tripled in the past 5 years. As long as you make money, who cares who pays the difference.

2008 Aug 13 10:53 PM

[CPST1:]

The option to exercise the utility for any given source of energy is certainly a credential becoming more attainable to more households, businesses, and institutions through ready advancement of technology aided combustion systems. We've also seen geo thermal work exceptionally well by reducing cost of winter heating 50% and eliminating #2 fuel. Strikingly, the conversion to LP, or wood pellet sourced fuel is tantamount to the winter heating season soon to be upon us. It's the diversification and change from doing the same routine the same way that is shifting the demand for fuels more so than the daily spot price which we all can see now is not to be relied upon. Short term supply of ethanol in abundant quantity is as yet to be fully factored because of the first signs now of a high yield corn harvest. Like a flex fuel vehicle so to can there be more diversified application of building utility self contained power systems that can optimize the need for energy as a function of that energies cost. There are so many crossroads that have never been reached before that each new generation of appliance will likely use a fuels complete functionality as it propels the appliance, it is intended to power. Back in the old days we only had use to use less gas on the pedal.

2008 Aug 14 12:12 AM

[cranmer:]

MRO is dirt cheap.

2008 Aug 14 11:09 AM

[farhad:]

It is doubtful Chinese will continue subsidizing their oil consumption while losing billion of dollars. Sooner or later they have to stop. Predicting the future demand for oil remains only a prediction. I would not buy oil yet.

2008 Aug 15 12:42 AM

[User 138549:]

You might consider adding Cabot Oil & Gas, Kodiak O & G, and Northern O & G to your list (symbols COG, KOG and NOG). These smaller exploration companies are diligently working the shales. Their reserves are only going to grow higher and higher.

2008 Aug 15 04:11 AM

[forgetalpha:]

jim rodgers said that? I'm pretty sure every asset manager ever has said that, rather than the genius momentum investors who have gotten burned by the stocks featured.

2008 Aug 15 10:43 AM

[Ricard:]

I remember not too long ago oil traded at $20 (right around 9/11). Now, people are saying $80 is cheap, because of demand from China, India, etc. People, those countries have been industrializing for the past 30 years. It's a classic case of short-sightedness to say that the recent 500% - 700% gain in oil is due to factors that have been around for much longer.

2008 Aug 15 05:59 PM

[JOE.D:]

Do you mean get out or into wheat, corn, soybeans? I'm sure down, but waiting for an exit price.
Guess you mean corn will be cheaper. Right?


On Aug 13 11:05 AM CPST1 wrote:

> Add bio fuels because of mandates to the blend and the margins change
> drastically because, by law, certain fuels used for transportion
> are required to use ethanol. There is a reduction for gas and not
> for ethanol. Most ethanol is transported by rail before blending
> and crop (ethanol) harvest yields are expected to be at record levels
> this year. The jump in oil price has not withstood its value and
> instead reduced its demand.

2008 Aug 16 09:57 AM