Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Beleaguered oil stocks including SandRidge Energy (NYSE: SD), Halcon Resources (HK), and Transocean (RIG 2.16%) rallied double digits on Monday.
Fueling the surge was crude oil, which also enjoyed quite a rally, as it ended the day up 6.1% to close at $52.14 per barrel. That marked the highest close since mid-February, and was driven by signs that oil market fundamentals are improving.
So what: On the demand front, there were signs that demand for oil was stronger than expected in both the U.S. and in Asia. That's after data provider Genscape reported that crude oil supplies in Cushing, OK, which is a key U.S. oil-storage hub, fell by nearly 300,000 barrels during the past week, as refiners processed more oil than anticipated. This drawdown in supplies comes after a worrisome inventory build had many oil traders worried that we were running out of oil-storage space. Also priming the pump for bulls was the fact that Saudi Arabia raised its official selling price for crude to Asian buyers, signaling demand in the region was higher than expected.
Meanwhile, worries about the oversupply of oil in the market eased after reports surfaced that a potential nuclear deal with Iran wouldn't lead to a new flood of oil hitting the already oversupplied market. Analysts now believe that it would take at least a year before Iran could ramp up oil exports. This eased investors' fears that a new supply shock wouldn't happen.
Now what: The bullish demand data is a real boon for oil stocks, as it suggests that the glut of oil could be worked off quickly. That, combined with weaker supply growth, could push oil prices meaningfully higher. That would improve the profits of drillers like SandRidge and Halcon, while also leading to a better market environment for an offshore driller like Transocean. It's a case of a rising tide lifting all boats, with this tide showing signs of staying power, as demand for oil, which had been weak, appears to be picking up.
