Some signals hint of rising oil consumption in US
Oil-industry stocks have had a rough time because of worldwide oversupply and declining prices. But now, despite the projected continuation of the worldwide oil surplus, market analysts say that judicious investment in energy stocks may again be a good idea. The primary reason given is that the growing strength of the United States economic recovery will demand more oil.
The Boston-based Fidelity Group, which offers its clients a select energy portfolio, says a surge in investors' interest in energy stocks in the past five months could indicate ''the marketplace as a whole could be shifting its attention'' back to energy issues.
From March 31 to July 26, Fidelity officials say, Select Energy Portfolio assets increased 1,019 percent and the number of accounts were up 667 percent, with share price rising during that period from $8.11 to $10.34. Through late August, a spokesman says, this trend has continued. The week of Aug. 8-12 this portfolio was the nation's top performing mutual fund. Share price Aug. 26 was $ 10.41. A portfolio specialist says the fund is heavy on natural gas and oil-service stocks.
Specialists in the oil sector generally concur that:
* Prices set by the Organization of Petroleum Exporting Countries (OPEC) have stopped their free fall and will remain stable - or may rise slightly - in the next year.
* US and global need for oil will pick up, moving toward pre-recession levels.
* Saudi Arabia and other OPEC states have much unused pumping capacity, but continued instability in the Persian Gulf area may imperil supplies.
* Oil exploration in the US and Canada is promising off California, the Gulf of Mexico, off Newfoundland, and the Beaufort Sea, but new finds will take several years to bring on-line and then will be needed simply to keep up with depletion of domestic oil.
* A sustained period of liquidation of oil inventory has ended and restocking for winter 1983-84 consumption is beginning to pick up speed.
As a result, notes Shearson/American Express oil analyst Sanford L. Margoshes , ''there is increasing evidence that confidence is returning to the oil sector - both for managements and investors.'' He predicts that American oil consumption will be up 1 to 2 percent in the third quarter of this year over the same quarter last year; 2 to 3 percent in the fourth quarter over the same period last year; and 3 to 5 percent in the first quarter of 1984.
Margoshes points out that the oil supply from the Persian Gulf is still a concern due to the three-year-old Iran-Iraq war and France's forthcoming delivery to Iraq of five fighter-bombers capable of firing Exocet missiles. Thus he favors domestic oil companies with ''politically secure crude.'' These include Standard Oil of Ohio, Shell, Atlantic Richfield, and Getty.
In the 5 1/2 months since OPEC was able to hold the line on oil prices at $29 per barrel, the organization has been able to increase production quotas without causing a drop in prices. Oil analyst Dan McKinley of Smith Barney, Harris Upham predicts that at a Sept. 13 OPEC meeting Saudi Arabia (the key OPEC country, currently pumping 5.5 million bpd) will opt not to allow prices to rise due to higher global demand but rather will call for production increases.
Despite the growth of non-OPEC oil production, Mr. McKinley still sees OPEC as the key to worldwide supply and prices. His long-range view is that oil remains ''a commodity that, unlike other commodities, is going out of existence - and non-OPEC fields are being depleted faster than OPEC fields.'' Still, he thinks there are some promising areas for exploration, the main one being in the sea off China.
Following a Japanese discovery off China and an Arco/Santa Fe natural gas find, exploratory rights were acquired by British Petroleum, Occidental Petroleum, and, most recently, by Royal Dutch Shell/Exxon. McKinley sees this as the ''biggest, least-tested basin in the world.'' Though the Beaufort Sea and Alaska's North Slope are also promising, McKinley believes high delivery costs will be a problem.
McKinley says his firm thinks oil service companies such as Schlumberger, Hughes Tool, and Halliburton are in a strong position today. As oil prices dropped from $34 to $29 per barrel the past year, the price of drilling a new well dropped 30 to 40 percent, he says.
E.F. Hutton analyst William Craig, too, recommends oil service companies, calling them ''very lean'' following the recession. Craig believes that the US oil industry is ''a very mature, low-growth industry.'' To prosper, he says, ''companies must have aggressive exploration efforts to replace production.'' Thus he suggests buying Exxon, Standard Oil of Ohio, Phillips Petroleum, and Atlantic Richfield, though he cautions not to overweight these in one's portfolio. One danger to energy stocks, Craig says, would be an aborted US economic recovery.
The recovery still seemed to be going strong last week, although, peering into the future, stock traders were unable to conclude which sectors would be strongest. A preference for blue chips indicated a desire to latch onto proven, stable performers, but otherwise trading seemed to elude rational justification.
For instance, defense issues (Northrop, General Dynamics, Lockheed), were big losers due, some said, to the announcement by US Sen. John Tower (R) of Texas, chairman of the Senate Armed Services Committee, that he would not seek reelection. It seemed a thin reason, since the Reagan administration is heavily committed to defense spending with or without Tower in the Senate.
A number of brokerage houses feel that the midsummer ''correction'' - a profit-taking session in the year-old bull market - is nearing the end of run. Much of the dip during this correction phase has been attributed to worries over interest rates, but several analysts point out that vacationing investors are simply less interested in the market during this time of year.
The Dow Jones industrial average finished the week at 1,192.07, off 2.14 for the week.
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