Oil service stocks made solid headway Monday, carried to a higher close on a couple of upbeat analyst assessments of the sector, while oil and natural gas stocks slogged through a choppy session to end narrowly mixed.
Capital Markets analyst Kurt Hallead said in a research note that companies providing oil field services and equipment are poised to capture strong demand this year, breaking out of a 12-15 month slump amid market conditions reminiscent of 2005. "Energy stocks have regained their market leadership, investors [are] buying despite bad company news, and the 2006 [Philadelphia Oil Service Index] correction has run its course," Hallead said.
Offshore rig owner and operator Transocean Inc. (RIG : 83.25, +0.3, +0.3%) , FMC Technologies Inc. (FTI : 72.32, +0.26, +0.4%) and Schlumberger Ltd. (SLB : 77.57, +1.57, +2.1%) have what Hallead called the best upside surprise prospects, while Rowan Companies Inc. (RDC : 35.36, +0.24, +0.7%) , BJ Services Co. (BJS : 30.64, +0.43, +1.4%) , and Patterson-Uti Energy Inc. (PTEN : 24.84, +0.63, +2.6%) "will likely come in short of expectations," he said. In other broker action, Lehman Brothers upgraded BJ Services Co. to overweight from equal weight, helping the stock gain 1.5% to $30.66 a share. Jeffries & Co. analyst Stephen Gengaro issued an upbeat note on the oil services group, pointing to its 10% year-to-date climb. Gengaro listed Baker Hughes Inc. (BHI : 72.54, +2.18, +3.1%) and Schlumberger as his top large-cap picks in the group, with price targets of $88 and $77, respectively.
The notes helped the Oil Service Index ($OSX : 0.00, 0.00, 0.0%) to a 0.9% gain at 229.7 points. The move far outpaced a gain of less than 0.1% to 1,271.7 for the Amex Oil Index ($XOI : 1,271.74, +0.55, +0.0%) , which nevertheless managed to hit a fresh all-time intraday high of 1,274.1 despite the slim advance. The Amex Natural Gas Index ($XNG : 498.07, -0.62, -0.1%) fell 0.1% to close at 498.1 points. May crude-oil futures on the New York Mercantile Exchange shed 2 cents to finish the day at $63.61 a barrel, bouncing back from a session low of $62.58. See Futures Movers.
Energy traders were keeping a close eye on local elections in Nigeria, which opposition groups claimed had been rigged. This raises concerns about whether the country can conduct a peaceful presidential election on April 21. Nigeria's oilfields have been plagued by violent protests, trimming the OPEC nation's output by as much as 20%. Valero Energy Corp. (VLO : 66.92, -1.48, -2.2%) led percentage decliners in the Amex oil group, down 2.1% to close at $66.92 a share. The company said again late last week that restart of its northern Texas McKee refinery, shut by fire in February, would only manage to bring the plant up to half of its 170,000 barrel-per-day capacity this month.
Valero has said the refinery is unlikely to resume full output until the end of the year, curbing its participation in the robust margins for petroleum products that other refiners are enjoying as the nation builds up gasoline stocks ahead of the summer driving season. Valero and Tesoro Petroleum Corp. were also hit by downgrades from Citigroup analyst Doug Leggate, who based his move on what he called their limited upside potential despite generally strong refining margins.
Leggate left his 12-month target price for Valero unchanged at $71 a share but raised his target for Tesoro to $120 from $112.
Tesoro (TSO : 110.52, -1.22, -1.1%) shares fell 1.1% to $110.52. Leggate said Sunoco Inc. (SUN : 73.67, -1.08, -1.4%) was the only company among the refiners he covers to retain a buy rating. It didn't help the stock, however, which shed 1.4% to $73.67.
Other stocks in the sector were mostly limited to less than one percentage point. Industry giant Exxon Mobil Corp. (XOM : 78.17, +0.76, +1.0%) rose 76 cents, or 1%, to $78.17 a share, and ConocoPhillips (COP : 70.60, +0.06, +0.1%) was up 6 cents to $70.60. Chevron Corp. (CVX : 77.87, +0.86, +1.1%) was the standout gainer among the major U.S. oil companies, moving up 1.1% to $77.87. U.S.-traded shares of European-based BP Plc. (BP : 68.76, +0.35, +0.5%) rose 0.5% to $68.76 while Royal Dutch Shell Plc. (RDSA : 69.35, +0.23, +0.3%) added 0.3% to $69.35.
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