Should you need evidence that the market's totally confused about energy stocks, simply take a gander at Wednesday's one-day chart for deepwater driller Transocean (NYSE: RIG).
On that day, the company's share price moved -- "ricocheted" might be a more appropriate verb here -- from a low of about $73.84 to a high above $85. And even Schlumberger (NYSE: SLB), the oilfield service majordomo, which is accustomed to more modest fluctuations (perhaps given its status as the sector's kingpin), batted up and down between just below $70 and about $61.50.
The obvious engine for all this heightened volatility has been a question of where commodities levels are likely to go from here, following the slide in oil and gas prices since July. As most folks know, black gold has dropped from being within tickling room of $150 a barrel to a current level below $90. But who said oil and gas had been "decoupled"? Natural gas traded on the New York Mercantile Exchange has dropped from a high of $13.577 per British thermal unit in July to a current level just above $6.70.
The result has been an unbelievable thrashing for some of the nation's stronger independent producers. Chesapeake (NYSE: CHK), now the nation's largest gas producer, has watched its share price slide more than 70% from its 52-week high, despite its relative youth. Meanwhile, Apache (NYSE: APA) is down 45%, Devon's (NYSE: DVN) shares have fallen by 43%, and Anadarko's (NYSE: APC) shares have receded by 62%.
How much longer can this carnage continue? I strongly believe that it has probably about run its course. With oil and gas prices now effectively marching hand in hand (something they haven't always done in the past 20 years), I'm getting a progressively stronger inkling about OPEC perhaps convening a special meeting prior to its scheduled December event. The obvious intent would be a discussion of production cuts, which clearly would be intended to place a firmer floor under crude prices.
And while a slowing economy could continue to exert some downward pressure on both oil and gas prices, I'm nevertheless betting that production cuts by the cartel, coupled with the precipitous drop that commodities have already withstood, argue forcefully for some price stability for the hydrocarbon commodities in the coming months.
That being the case, amid this wacky whipsaw market, I believe there's an excellent case to be made for Fools with a taste for energy to slowly, steadily, and unnervingly build positions in any or all of these companies.
For related Foolishness:
Closed for 15 months – opening 10 days only! Get notified ahead of time as our expert portfolio manager invests $1 MILLION in the best opportunities from across The Motley Fool’s premium investment services. This is the first open since August 2008, by invitation only. Enter email below.
Terms & Conditions
RSS Headlines
Fool UK