Transcripts

Old Man Winter Warms Up Crude Oil Prices

PAUL KANGAS: Colder temperatures in the northeast today sparked a slight recovery in energy prices. In New York trading, crude for February delivery surged 3 percent to close just shy of $52 a barrel. Still, oil prices are off sharply this year and the sell-off is pressuring oil stocks. Suzanne Pratt looks at the environment for big oil shares in 2007.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since the start of the year, most oil shares have gotten clobbered. It's no wonder, considering crude oil prices are off nearly 15 percent in 2007 and 33 percent from last summer's high. An unusually warm winter has helped to dampen energy demand and now, supplies are likely to remain abundant, no matter what happens with Mother Nature. Amid that backdrop for oil prices, investors have been questioning whether major oil stocks are still a good bet. Oppenheimer analyst Fadel Gheit says he's currently neutral on the oil sector because he's concerned oil prices remain inflated.

FADEL GHEIT, OIL ANALYST, OPPENHEIMER & CO.: Despite the sharp drop, there's still more premium in oil prices and if we don't have any global crisis and demand slows down for any reason, I think there's more room for oil prices to go lower.

PRATT: Oil companies still make oodles of cash, even if oil prices are at $50 a barrel. But the movement in oil shares is strongly linked to the direction of energy prices. Monness Crespi oil analyst Sal Ilaqua says many oil shares may hold up better than you might expect, because not all oil stocks climbed as quickly as energy prices.

SAL ILACQUA, OIL ANALYST, MONNESS, CRESPI, HARDT & CO.: Now, with prices coming down, there will be an impairment to earnings, but I don't think that stocks will go down as much as you might see earnings go down, at least at this stage.

PRATT: In general, analysts say the larger oil companies can weather falling crude prices better because they can produce oil for less money. To that end, Oppenheimer's Gheit, who owns shares off ExxonMobil, says that company is in the best shape to cope with falling oil prices. On the other hand, he says ConocoPhillips stock will be hit hard if oil prices continue to fall. If prices rebound, Gheit, who also owns Conoco, likes its prospects.

GHEIT: If industry fundamentals improve, ConocoPhillips probably could gain the most. It is also the cheapest company in terms of valuation.

PRATT: Analysts say oil prices would have to fall to $40 a barrel before the outlook for big oil would get really worrisome. Even though oil companies still make money at that level, it would definitely spook investors. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.