Despite the bounce in ExxonMobil (XOM) shares today, following a Q4 profit beat this morning, you may want to steer clear of energy equities in general, writes Citigroup strategist Tobias Levkovich in a note to clients:
We consider it appropriate to raise a flag of caution on our Energy group overweight position, given the signals from the revamped valuation analysis. Every sub-industry group within the sector is looking challenged on valuation (see Figures 10, 11, 12 and 13) and any further dollar strength could make things difficult for the stocks as well. Note that the so-called �shoulder months� may be starting up soon and thus there is the possibility of trading weakness as well. Hence, one should perceive Energy to be on a �downgrade watch.�
In other mixed news for the industry, Royal Dutch Shell (RDSA) today said it would shut down three pumping stations in Nigeria after saboteurs cut a crude oil pipeline there.
And both The Wall Street Journal and The Financial Times this morning discuss the implications of reports that global supply of oil stored on floating tankers has halved in the last 9 months. The Journal’s Guy Chazen reports that speculators can’t agree whether this means oil’s surplus has burned off and prices will tighten, or whether supply is now in balance with depressed demand, which would hold down prices. (Sorry, no link to the DJ wires story.)
The FT’s Kate Mackenzie reports analyst firm JBC Energy says oversupply won’t disappear until well into this year.
Oil futures today for light sweet crude, for the March contract, are up 90 cents today at $73.79 per barrel.
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