Can Oil Stocks Sustain Rally?

ByABC News
August 24, 2000, 10:47 AM

N E W   Y O R K,  Aug. 24 -- Think low oil inventories and heavy demand mean oil-related stocks will keep rallying?

Dont bet on it.

Be cautious, at least, say oil analysts and money managers.

Yes, the steady climb in oil prices fueled incredible rallies in oil prices as well as oil-related stocks. No stone has been left untapped as shares of companies engaged in various stages of oil production, processing and distribution are trading near 52-week highs.

The October Brent crude oil futures contract a commonly quoted oil futures contract and an indication of the markets sense of the direction of oil prices traded Wednesday near a 10-year high.

While this mini energy crisis is expected to continue into the winter, investors dont believe stock prices have much higher to go.

Someone Will Find More Oil

The market is already anticipating a crunch caused by incredible demand. Its possible inventories will increase. And theres always the weather, the other unpredictable factor in oil demand.

Everybodys going to chase these stocks, and theyll be paying big bucks for all the oil-service and oil-equipment and subcategories stocks, said Doug Myers of IJL Wachovia. Then someone will find more oil. These stocks tend to be feast or famine-type stocks.

A 19 percent rally in the Philadelphia Stock Exchange Oil & Service Sector Index, or OSX, over the last four months should inject some caution. So should a 10.2 percent gain in the American Stock Exchange Oil & Gas Index. Energy stocks tend to rally in the summer months in anticipation of increased fuel needs in the winter, and that effect has been more pronounced this summer as oil prices exploded. OPEC has increased production, but not enough to offset demand.