Can Oil Stocks Sustain Rally?

The short-term outlook is strong. The long-term outlook is strong. It’s just the medium term, the next six months, that looks shaky. The winter months tend to be unkind to oil stocks. Generally, stock prices tend to dip in the winter in anticipation of the slower summer months. And low inventories can be somewhat deceiving. “The market fully appreciates the situation for the oil stocks,” said David Brady, portfolio manager of the Stein Roe & Farnham Young Investor fund. “Clearly, it’s a time of year where you hear about talks of potential shortages. It’s not too unusual to see these stocks rally, but it causes me to be a little cautious going into this time of year.” Indeed, the Philadelphia Stock Exchange Oil & Service Index fell 21.8 percent between September 1999 and December 1999. Over the past week, crude oil inventories fell 7.77 million barrels to a 24-year low of 279.71 million, bringing inventories to their lowest level since 1976. That’s 35.38 million barrels below last year’s level. Gasoline inventories fell 1.14 million barrels to 203.34 million, down 4.6 million barrels from a year ago.   These inventories will probably stay low for a while. The stocks, meanwhile, might not stay so high.

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