Asia Cheer Can't Overcome Iraq Blues for Most Drillers

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What's keeping most oil service and drilling stocks from participating in the market's broad-based rally Monday? Fear of 2 million more barrels of oil per day pumped into the world market at a time when demand is slowing.

That's about what Iraq may be allowed to export under the current phase of its oil-for-food deal with the

United Nations

if Secretary General Kofi Annan's recommendation is passed by the U.N.

Security Council

, a process expected to take at least two weeks of negotiation. The possibility of more oil on the market, combined with Iraq's agreement to accept Turkish intervention to help ease the weapon inspection crisis, put downward pressure on crude prices at the open.

The pressure follows a weak close in crude futures Friday. "No one wants to go home long," says Victor Yu, vice president at

Refco Inc.

"Their view is the market is still not favorable." Crude futures for March dropped to a low of $16.70 in morning trading before climbing back to $16.99, down 21 cents.

Before any big move can be made in the oil service sector, investors will need to see oil prices come back up, says Erik Gustafson, portfolio manager of the

(SRFSX)

Stein Roe Growth Stock fund. He is limiting himself to selective buying on these down days, and today is adding slightly to his position in

Schlumberger

(SLB) - Get Report

, down 5/16 at 73 3/8. Other investors may be following a similar pattern, or are just plain uncertain about whether to jump in.

The

Oil Service Index

(OSX) opened up, fell to a low of 96.22, and traded at 97.20 around 12 noon EST, still down 0.20. Other service and drilling stocks down are land-driller

Patterson Energy

(PTEN) - Get Report

, down 1/2 to 12 3/16, and offshore driller

Diamond Offshore

(DO) - Get Report

, down 7/16 to 44 3/16.

Still, some are managing to post gains today. On the up side are

Transocean Offshore

(RIG) - Get Report

, up 3.5%, or 1 3/8, to 41 1/8,

Western Atlas

(WAI)

, up 3/16 to 62 1/2, and

Marine Drilling

(MDCO) - Get Report

, up 5/16 to 18 3/8.