Friday was a big day for oil and gas production companies. The country’s three largest and many others hit new 52-week highs, and it is not entirely due to the turmoil and uncertainty in Iraq. U.S. companies produce little oil in Iraq, although some do have stakes in large projects that are currently in the exploration and development phase and could turn out to be major producers in the future.
West Texas Intermediate (WTI) crude oil for August delivery closed at $106.83 a barrel on the NYMEX Friday; July futures closed at $107.26. Brent crude closed on the ICE at $114.81. For the week, WTI gained about 0.33% and Brent about 2.1%.
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In addition to the uncertainty about Iraqi supply, there are other pressures on crude prices. China has been purchasing oil for its strategic reserves, even though prices are high. China is squabbling with Japan and Vietnam over territory, and the country wants to build up its reserves to 100 days of net imports by 2020.
The first phase of China's strategic build-up amounted to 103 million barrels and was completed in 2009. The second phase was supposed to add 169 million barrels to the reserve but since has been raised to 245 million barrels. The second phase is expected to be completed by 2015. The country is now building storage tanks for the third phase to hold an additional 152 million barrels.
That is 500 million barrels, of which most could have been left in the ground, just as most of the 750 million barrels in the U.S. strategic reserve could have been. That unnecessary demand plays a significant role in the rising price of crude, regardless of whether a producer sells to China.
Back to the U.S. oil producers. Exxon Mobil Corp. (XOM) is the largest of the U.S. companies, and it posted a new 52-week high Friday of $104.06. Shares are up nearly 15% over the past 12 months, but just 2.6% year-to-date. From a low of around $89 in early February, the stock has climbed nearly 15%. And since early February, Exxon has posted the smallest gain among five major U.S. producers. With a consensus price target of $101.21, one might conclude that Exxon is overbought.
Shares of Chevron Corp. (CVX) have gained just 10% in the past 12 months and only 6% since January. But following the early February plunge, shares have climbed 18%. Chevron’s February plunge was also the stock’s 12-month low. The consensus price target on the stock is about $132, also below Friday’s close of $132.34.
ConocoPhillips (COP), with a market cap of around $105 billion, is the country’s third-largest oil company by market cap, and its shares have gained 40% in the past 12 months. Since January, shares are up 21%, and shares are up more than 31% since early February. The consensus price target on Conoco’s shares is about $85.60, and shares closed at $85.36 on Friday. Not much headroom here.
Occidental Petroleum Corp. (OXY) shares closed at $104.14 on Friday. The stock is up about 13% in the past 12 months and up only about 9.4% year-to-date. Since early February, shares are up 15%. The company’s market cap is about $82 billion, and its consensus price target is around $108.00, which yields an implied upside of about 4%.
It seems that Continental Resources Corp. (CLR) posts a new 52-week high every week. Year to date, the shares are up 45%, and unlike the other stocks in this list, Continental just powered through the February drop the others experienced. Shares are up more than 42% since February and 81% over the past 12 months. Continental is the biggest producer in the Bakken play, and the availability of railroad transportation has set this company’s stock on fire. The consensus price target is about $145, well below Friday’s closing price of $156.25.
To buy any of these stocks now is bet on continued volatility. Most of these companies will be reporting second-quarter earnings in late July and early August. All are likely to report lower production, and that will send the stock prices down. The times require nerves of steel.
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