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Monday, October 23, 2006

Whither Big Oil? (XOM)(COP)(CVX)

Is the price of oil going up or down? Certainly OPEC wants it to rise. And, they are cutting production 1.2 million barrels a day to try to get it up. Apparently, if this cut doesn’t work, some OPEC members are prepared for another one.

So, far, however, talk of the OPEC cut, and even its announcement, have not sent oil prices back up. On Friday they traded at under $57.

No one on Wall St expects the oil companies to do poorly when they announce Q3 earnings, but their profits may no longer be rising quarter over previous quarter. If oil prices stay below $60, Q3 may be the beginning of a disappointing series of financial results for the likes of Exxon, Conoco, and Chevron.

The anxiety that oil prices could hurt big oil earnings is not really showing up in the stock prices of the big producers. But, that may mean that a tumble is still in their future. Exxon’s stock is at $69.55, very near its 52-week high, and up from under $56 in December. Chevron’s stock is also within a couple of dollars of its 52-week high of just under $70.

The perception of where oils are likely to be (relatively low) and where the big oil stock prices trade (high) is going to have to be reconciled. It is probably the stock prices that will lose.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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