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MARKET SAVVY

Oil Prices Jump as Cuts by Major Exporters Take Hold

April 29, 1999|From Times Staff and Wire Reports

Crude oil prices surged Wednesday to their highest level since late 1997, amid new evidence that major oil exporters are cutting production, as promised.

And on Wall Street, the growing fear among institutional investors seems to be that they're going to be caught with too few energy stocks if oil's rebound sticks.

Evidence of that fear: Energy shares rocketed, despite what have been dismal first-quarter earnings reports from many oil and gas companies.

In New York, near-term crude oil futures jumped 64 cents to $18.45 a barrel, the highest price since Dec. 18, 1997.

The American Petroleum Institute's latest weekly reading showed a 1.4% decline in U.S. oil inventories to 336.4 million barrels. The decrease indicates that the April 1 production cuts by Saudi Arabia, Mexico, Russia and other major oil exporters are beginning to eat into inventories, analysts said.

"The crude imports are finally down," said Chester Irvin, a trader at ABN Amro Inc. in New York. The big oil exporters "really are sticking to their quotas."

That may be painful for consumers, but some investors smell opportunity in energy stocks.

Here are some of the energy names Wall Street likes:

* "It's time to overweight the oils" in stock portfolios, Prudential Securities analyst Steven Pfeifer said in a recent report to clients.

He sees an average price of $15.75 a barrel for the year, well above the $12-to-$13 range in the fourth quarter of last year and first quarter of this year.

His top stock pick: France's Total (ticker symbol: TOT; Wednesday price: $65.94, up $2.06), which explores for, produces and refines oil worldwide. Pfeifer has an $81 price target for the stock, based on expected earnings recovery.

He also favors Mobil (MOB, $102.13, up $3) as a global energy play and a better way to bet on the sector than Exxon (XON, $81.50, up $3.25), which is in the process of acquiring Mobil. Pfeifer's price target for Mobil: $120.

* Morgan Stanley Dean Witter analyst Douglas Terreson also likes Mobil as an international energy play. In addition, he rates USX-Marathon (MRO, $29.56, up $2.63) a "strong buy" and his best idea among major domestic energy companies, with a price target of $35 to $36.

Among "pure" exploration and production firms, Morgan Stanley analyst Philip Kehl has "strong buy" recommendations on two that he says are particularly sensitive to oil's price changes: Vintage Petroleum (VPI, $10.88, up 25 cents) and Santa Fe Energy Resources (SFR, $8.56, up 19 cents).

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Bubblin' Crude

How near-term crude oil futures in New York have rebounded (monthly closes and latest, per barrel):

Wednesday: $18.45

Source: Bloomberg News

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