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11/17/2006

Oil's Barometers

Just like the S&P 500 is the chief broad indicator for the stock
market (the Dow Jones Industrial Average gets the headlines, but
non-sector specific money managers are graded vs. the S&P), for
energy stocks the two chief benchmarks are the OSX and XOI.

The OSX is comprised of oil service companies and drillers,
among which are operators such as Baker Hughes, Nabors,
GlobalSantaFe, and Schlumberger.

The XOI is comprised of the major integrateds, including the
likes of BP, Chevron, ConocoPhillips and Exxon Mobil.

So I thought we’d take a look at the price action in these two the
past 24 months as crude oil rocketed from $43 to $78 and back to
$60.

As you can see below, the OSX basically doubled in 16+ months
as the price of crude was rising 80 percent ($43 to $78), while
the XOI rose about 70 percent over a slightly longer time period.

Both have been volatile, with rallies and corrections of 10 to 15
percent often occurring in a matter of days and weeks. The
moves have been exacerbated by ‘hot money,’ hedge funds, that
have traded the energy sector as part of the overall boom in
commodities; one fueled by increasing demand from China and
India beyond what was expected just a few years earlier.

Geopolitical concerns have also been a key factor, particularly
Iran. It was a perceived lessening of tensions over Iran, for
example, that helped lead to the mini-collapse in oil prices from
$78 to below $60. Of course as I’ve argued in my “Week in
Review” column, the issue of Iran is really just as hot as ever,
even if traders don’t recognize it as such these days.

Fundamentals, however, have also played a role in the recent
declines in the commodity (including gasoline futures and
natural gas). Inventories are more than substantial and have been
for years.

But why have energy stocks, as represented by the OSX and
XOI, rallied back so hard following the index lows of Oct. 3,
while the price of crude has been essentially unchanged and
mired below the $60 level?

Again, part of it is the hot money drying up (at least for now),
including on the ‘short’ side, and thus those left are focusing
more on profit fundamentals which remain strong.

But as always there remain concerns, such as a new Democratic
majority in Congress attempting to take away Big Oil’s
incentives to drill. I’ll comment as needed on that topic in
“Week in Review,” as well as my running commentary on the
hot spots, the vast majority of which these days have an oil
angle.

Lastly there’s the weather, which can impact oil prices both on
the upside (such as was the case with Hurricanes Katrina and
Rita), as well as the downside in terms of above normal
temperatures. But only Mother Nature can comment on these
matters and she’s a tough one to track down.

OSX

12/31/04 123 (index level) ($43.45 oil price)
3/31/05 ..139 ($55.41)
6/30/05 ..146 ($56.50)
9/30/05 ..175 ($66.24)
12/31/05 182 ($61.04)
3/31/06 ..208 ($66.32)
5/10/06 ..235 ($72.14)
6/30/06 ..210 ($73.95)
7/14/06 ..208 ($77.03, $78 intraday peak)
9/30/06 ..186 ($62.91)
10/03/06 173 ($58.69)
11/15/06 201 ($58.76)

Notes: 5/10/06 closing high intraday high established at 238 on
5/11. 10/3/06 cycle low.

XOI

12/31/04 721 ($43.45)
3/31/05 .852 ($55.41)
6/30/05 .888 ($56.50)
9/30/05 1076 ($66.24)
12/31/05 986 ($61.04
3/31/06 1070 ($66.32)
6/30/06 1153 ($73.95)
7/14/06 1177 ($77.03, $78 intraday peak)
8/9/06 ..1219 ($76.36)
9/30/06 1083 ($62.91)
10/3/06 1035 ($58.69)
11/15/06..1177 ($58.76)

Notes: 8/9/06 closing high intraday high established at 1232,
also on 8/9. 10/3/06 cycle low.

Sources:

Yahoo Finance, Union Pacific Railroad (uprr.com),
StocksandNews.com database

Wall Street History will return 12/1/06. Happy Thanksgiving.

Brian Trumbore



AddThis Feed Button

 

-11/17/2006-      
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Wall Street History

11/17/2006

Oil's Barometers

Just like the S&P 500 is the chief broad indicator for the stock
market (the Dow Jones Industrial Average gets the headlines, but
non-sector specific money managers are graded vs. the S&P), for
energy stocks the two chief benchmarks are the OSX and XOI.

The OSX is comprised of oil service companies and drillers,
among which are operators such as Baker Hughes, Nabors,
GlobalSantaFe, and Schlumberger.

The XOI is comprised of the major integrateds, including the
likes of BP, Chevron, ConocoPhillips and Exxon Mobil.

So I thought we’d take a look at the price action in these two the
past 24 months as crude oil rocketed from $43 to $78 and back to
$60.

As you can see below, the OSX basically doubled in 16+ months
as the price of crude was rising 80 percent ($43 to $78), while
the XOI rose about 70 percent over a slightly longer time period.

Both have been volatile, with rallies and corrections of 10 to 15
percent often occurring in a matter of days and weeks. The
moves have been exacerbated by ‘hot money,’ hedge funds, that
have traded the energy sector as part of the overall boom in
commodities; one fueled by increasing demand from China and
India beyond what was expected just a few years earlier.

Geopolitical concerns have also been a key factor, particularly
Iran. It was a perceived lessening of tensions over Iran, for
example, that helped lead to the mini-collapse in oil prices from
$78 to below $60. Of course as I’ve argued in my “Week in
Review” column, the issue of Iran is really just as hot as ever,
even if traders don’t recognize it as such these days.

Fundamentals, however, have also played a role in the recent
declines in the commodity (including gasoline futures and
natural gas). Inventories are more than substantial and have been
for years.

But why have energy stocks, as represented by the OSX and
XOI, rallied back so hard following the index lows of Oct. 3,
while the price of crude has been essentially unchanged and
mired below the $60 level?

Again, part of it is the hot money drying up (at least for now),
including on the ‘short’ side, and thus those left are focusing
more on profit fundamentals which remain strong.

But as always there remain concerns, such as a new Democratic
majority in Congress attempting to take away Big Oil’s
incentives to drill. I’ll comment as needed on that topic in
“Week in Review,” as well as my running commentary on the
hot spots, the vast majority of which these days have an oil
angle.

Lastly there’s the weather, which can impact oil prices both on
the upside (such as was the case with Hurricanes Katrina and
Rita), as well as the downside in terms of above normal
temperatures. But only Mother Nature can comment on these
matters and she’s a tough one to track down.

OSX

12/31/04 123 (index level) ($43.45 oil price)
3/31/05 ..139 ($55.41)
6/30/05 ..146 ($56.50)
9/30/05 ..175 ($66.24)
12/31/05 182 ($61.04)
3/31/06 ..208 ($66.32)
5/10/06 ..235 ($72.14)
6/30/06 ..210 ($73.95)
7/14/06 ..208 ($77.03, $78 intraday peak)
9/30/06 ..186 ($62.91)
10/03/06 173 ($58.69)
11/15/06 201 ($58.76)

Notes: 5/10/06 closing high intraday high established at 238 on
5/11. 10/3/06 cycle low.

XOI

12/31/04 721 ($43.45)
3/31/05 .852 ($55.41)
6/30/05 .888 ($56.50)
9/30/05 1076 ($66.24)
12/31/05 986 ($61.04
3/31/06 1070 ($66.32)
6/30/06 1153 ($73.95)
7/14/06 1177 ($77.03, $78 intraday peak)
8/9/06 ..1219 ($76.36)
9/30/06 1083 ($62.91)
10/3/06 1035 ($58.69)
11/15/06..1177 ($58.76)

Notes: 8/9/06 closing high intraday high established at 1232,
also on 8/9. 10/3/06 cycle low.

Sources:

Yahoo Finance, Union Pacific Railroad (uprr.com),
StocksandNews.com database

Wall Street History will return 12/1/06. Happy Thanksgiving.

Brian Trumbore