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Market Rally Ignores Oil Stocks

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The government takeover of Fannie and Freddie may have spiked the financial sector and homebuilders but it did nothing for the energy sector. Most energy stocks were significantly lower as money shifted to financials and away from fickle oil prices.

Hurricane Ike crossed over Cuba and is now on the western side and heading northwest. It is scheduled to cross back over Cuba as it moves into the gulf late Tuesday. As it moved over land the intensity declined to a category 1 storm with winds of 80 mph. Once back over water it is expected to intensify again. Because Ike start out strong a couple weeks ago as it began its long trek across the ocean it is an exceptionally big storm and could easily rebuild back to a category 4 before crossing the oil patch. It is too early to theorize on that until it enters the gulf.

The current storm track is pointed at Texas between Corpus Christi and Houston. This track will hit a different set of oil installations than Gustav hit last week. It will miss the portion of the gulf where installations are most heavily populated. However, there is enough potential for a turn northward that no installations in the gulf are safe and precautions are being taken across the entire oil patch. Shell, the largest producer with 1550 workers in the gulf, has only returned 650 to the platforms and is making plans to quickly remove those as Ike gets closer.

The price of oil declined as Ike's intensity declined and the track veered farther west. Crude was trading at $106 at Monday's close. Coal stocks and natural gas stocks were the least favored on Monday with the majors down sharply. CNX -6, ACI -5.50, MEE -5, FCL -5, UPL -4.50, EOG -3.50, BTU -3.40. Oil stocks and drillers were beaten less severely because the next three inventory reports are going to be very bearish. HES -3.30, SU -3.27, PBR -1.62, HAL -1.50, NBR -1, MUR -1.50. Stocks on the upside were XOM, +1 and refiners TSO, VLO, FTO, WNR and CVX up around a buck.

The OPEC chatter began in earnest on Monday as oil ministers began arriving for Tuesday's production meeting. Nearly all found an open microphone at one point and began warning about swelling supplies however nobody was making a big stand and calling for cuts. The rising consensus is for a production cut in December. Nearly every member expressed concerns due to a spike in new production coming to market over the next six months and the slowdown in consumption at the current price level. Saudi Arabia's oil minister was not expected to arrive in Vienna until early Tuesday. The delay was probably planned to avoid being harassed with complaints about their estimated 750,000 bpd over quota production. Saudi is the key to any action by OPEC and they are on the hot seat with the other 12 members wanting them to cut back so prices will firm.

Jim Brown


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