Energy Stocks Recoup Some Recent Declines Amid Inventory Data

30th Jun 2010 18:35

By Shara Tibken Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Shares of energy companies saw some relief Wednesday, recouping some of their losses from Tuesday's sharp declines spurred by worries about weaker demand in China. Energy recently bucked declining crude oil prices to become one of the strongest sectors in the S&P 500, though trading volumes were light. Analysts said the stocks were getting support from gains in the broader market and recovering a bit from Tuesday's worries. In recent trading, the S&P 500 energy sector was up 0.59%. Some of the top gainers included offshore drillers, such as Seahawk Drilling Inc. (HAWK), up 4.9% at $10.08, and Diamond Offshore Drilling Inc. (DO), up 4.6% at $62.93. Atwood Oceanics Inc. (ATW) gained 3.7% to $25.66, Pride International Inc. (PDE) rose 2.9% to $22.46 and Ensco PLC (ESV) increased 3.6% to $39.95. Oilfield-services companies trading higher included Baker Hughes Inc. (BHI), up 3.3% at $42.17, and Halliburton Co. (HAL), up 3.2% at $25.26. Schlumberger Ltd. (SLB) rose 1.3% to $55.82, and Weatherford International Ltd. (WFT) advanced 1.2% to $13.46. Meanwhile, crude oil inventories showed a bigger draw last week than analysts expected, according to data by the U.S. Department of Energy. Oppenheimer analyst Scott Burk said the draw in Cushing, Okla., inventories was particularly promising. Inventories in Cushing--which is the delivery point for the Nymex crude contract--were at record levels in May and stockpiles were nearing storage capacity. Investors have been watching the inventory levels closely for declines. "The draw in Cushing makes it appear there's some demand strength in the U.S., which over time should help oil prices and therefore help the stocks," Burk said. But not all data from the DOE report was positive as they also showed a surprising rise in gasoline and distillate stocks. In general, inventories for refined products and crude oil are at unusually high levels for this time of the year--which is particularly discouraging since the nation is in the midst of the peak summer-driving season. Demand for gasoline remains weak and the recovery is expected to be slow given the high unemployment rate, increased ethanol blending and other factors. Meanwhile, the battered shares of BP PLC (BP, BP.LN) gained 3% to $28.51 as rising speculation of potential deal activity had investors increasingly viewing the oil giant's assets, and possibly the company as a whole, as an acquisition target. Russian oil major TNK-BP Ltd., which is jointly owned by BP and a group of Russian businessmen, said it would be interested in buying assets from its U.K. shareholder as a platform for international expansion. Burk said it's hard to tell if Tuesday's broader market selloff was an overreaction or if it's a sign of tough times to come. "Sometimes the market gives you hints that something is going to come to fruition over time," Burk said, adding the market has taken out the lows of the flash crash in May. "The reaction [Tuesday] to data points about China was extreme ... and there are concerns about a double dip." He added energy stocks will likely be weak through June and July and that they've underperformed the upside seen in oil prices of late. Offshore drillers have been hammered particularly hard on worries about President Barack Obama's moratorium on offshore drilling. Burk said if BP is able to cap the Gulf oil spill soon and the moratorium ends in the near term, the offshore drillers could see the most upside in share gains. But until that happens, investing in oilfield-services companies is a safer bet. In addition, onshore drillers have been seeing strong gains--at one point up about 20%--before easing off those highs a bit. -By Shara Tibken, Dow Jones Newswires; 212-416-2189; [email protected] (Naureen Malik contributed to this report.) (END) Dow Jones Newswires June 30, 2010 13:35 ET (17:35 GMT)