Opportunities in the Oil & Gas Sector

Description:

West Texas Intermediate (WTI) Crude oil prices dropped from a high of $114.80/bbl. on May 2 to a low of $74.90/bbl on October 4. This represents a 35% decline in the price of WTI Crude. During the same period of time the Philadelphia Oil Service Sector (OSX) and the Oil Service HLDRs ETF (OIH) declined from those period's high to low by about 40% each. Since the US markets bottomed in a rather dramatic fashion on October 4, WTI crude has risen by about $4/bbl. Clearly the oil service and integrated oil company stocks are highly correlated to each other. WTI at close to $115/bbl. was caused by panic over political uncertainty in the Middle East. The low of nearly $75/bbl. was caused by a strong US Dollar and fears of a global recession. The double dip theory took a hit when the September US Monthly Labor Report indicated that payrolls rose by 103,000 in the past month and another 99,000 was added above the previously reported and disappointing numbers for prior months.
A reasonable expectation would be for WTI to trade around $90 which is at least 10% higher than the most recent levels. As a result, I see some excellent opportunities across the entire oil & gas energy complex.

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