Oil-sector stocks are benefiting from a nine-year high in crude-oil prices, with shares of petroleum-related companies surging Tuesday on expectations that the
Organization of Petroleum Exporting Countries
will maintain its current production cuts past March. Frigid temperatures in much of the U.S. also contributed to a demand for fuel oil.
Some of the largest gainers of the day included oil exploration, production, and field-services companies, all of which stand to gain most from the continued buoyancy in oil prices. Some of those companies included offshore oil-driller
Global Marine Inc.
, which surged 8.8%, or 1 9/16, to 19 5/16 after posting slightly better-than-expected fourth-quarter earnings of 6 cents a share.
Other gainers included
, which rose 8.10%, or 3 1/8, to 41 11/16 and
, which rose 7.52%, or 4 5/8, to 66 1/8.
had upgraded Halliburton to a buy from neutral, and
initiated coverage of Schlumberger Tuesday, starting the stock on its recommended list.
"The exploration and production stocks are really benefiting from the sustained strength in oil prices," said
analyst Jay Wilson.
Rising oil prices also helped boost stocks for integrated oil and gasoline producers, said Wilson, whose firm upgraded integrated producer
to buy from market perform Tuesday. Unocal rose 5.65%, or 1 3/4, to 32 3/4.
"The bottom line is that nobody has expected oil to hold near these levels, and it has. That is a big positive for these companies' earnings in the near term," said Poe Fratt, senior analyst at
Surging oil prices also played a part in scaring government-bond investors, who pushed interest rates higher in fear that higher energy prices will lead to increased inflation. The yield on the 30-year Treasury bond, a barometer of long-term interest rate trends, rose to 6.74%, its highest level since July 1997.
But even higher interest rates might ultimately benefit cyclical sectors like oil, because they will "spook some money out of the faster growth sectors like technology and into sectors like oil, which has excellent earning potential and attractive valuations," said Wilson at J.P. Morgan.
The price of light-crude oil for February delivery at the
New York Mercantile Exchange
closed 83 cents per barrel higher at $28.85 per barrel after briefly flirting with $29 a barrel, the highest level since December 1990. That was mostly because of market speculation that OPEC will extend production cuts past the end of March, and because of a surge in demand for fuel oil as frigid winter weather covered much of the country.
A.G. Edwards' Fratt expects oil prices to stabilize around $21 per barrel in the first half of this year. But even then, he says that oil-related stocks have room to keep growing.
"Our models show that overall, stocks in the sector are reflecting about $19 per barrel. Given the fundamentals of the global recovery in demand, the restraint that OPEC has demonstrated, and the rotation from volatile growth stocks into value-oriented stocks, the outlook for the sector looks pretty good," said Fratt.
Other factors Tuesday helped to build confidence that oil will be able to sustain higher prices this year, including a report from the
projecting a 200,000-barrel-per-day decline in Iraqi oil sales under the latest revisions to the UN oil-for-food exchange, and an unexpected shutdown of a large refinery at Venezuela's Amuay refinery.