Analysts Get Giddy About Oil Amid Talk of OPEC Cuts

It's not easy to see through crude oil, but a couple of analysts think they may be looking at a near-term bottom in the petroleum sector.

For the past two months, oil and oil-related stocks have been on a steep downward trend as demand for oil and gas deteriorated. On Friday morning, reports out of two analysts described how the events of the last quarter set the stage for a near-term rally in the oil and gas sectors.

UBS Warburg's James Stone upgraded Halliburton(HAL Quote), BJ Services(BJS Quote) and Ensco International(ESV Quote) to buy from hold, largely based on valuation, indicating that the sharp selloff in oil stocks over the second quarter of 2001 was overdone. Tyler Dann, an oil analyst for Banc of America Securities, approached the sector from another angle, issuing a note discussing the likelihood that OPEC will cut production before its next scheduled meeting. Published reports are now surfacing that ministers from the oil producing nations will lower output in the next 10 days.

Stone's move, in part, might clear his conscience. He recommended oilfield services stocks last quarter, and now refers to that as a "blown call." The Philadelphia Stock Exchange Oilfield Services Index has dropped 32.5% since May 21. The Amex Oil & Gas Index has fallen 12.2% during the same period, and the Dow Jones Oil & Gas Index has lost 14.4% in that time.

Along with the upgrades, Stone maintained his strong buy ratings on Baker Hughes(BHI Quote), Cooper Cameron(CAM Quote), Weatherford International(WFT Quote), Nabors Industries(NBR Quote), Noble Drilling(NE Quote), Precision Drilling(PDS Quote) and Trico Marine(TMAR Quote). Each of those have gained strong ground since the note was published Friday morning.

Dann, in a research note Friday, speculated that there's about a 70% chance of an OPEC production cut before the group's next meeting on Sept. 26. He recommended ExxonMobil(XOM Quote), Chevron(CHV Quote) and Phillips Petroleum(P Quote).

Crude oil prices have fallen 15.4% since May 21, and natural gas and unleaded gas prices have slid as well. "The OPEC basket [of petroleum commodities] is currently at $22.64 [per barrel], near the low end of the $22/B - $28/B targeted price band," Dann pointed out.

For his part, Stone wrote that one catalyst for a near-term rally would be "oil prices surging back toward $30 on the back of an OPEC cut."