By Steve Gelsi
U.S. energy stocks fell Tuesday in the face of a 200-point drop
in the Dow Jones Industrial Average as well as expectations for a
tough first-quarter earnings season.
Crude-oil prices provided another reason to sell energy stocks,
as oil futures fell back below $50 a barrel on jitters about the
economy and rising inventory levels.
Sector leader Exxon Mobil Corp. (XOM) dropped $1.58 to $68.47,
while Chevron (CVX) was down $1.66 to $68.23. The two big-cap oil
companies are components of the Dow Jones Industrial Average, which
retreated 198 points, or 2.5%.
The Amex Oil Index fell 2.8% to 866.
The Amex Natural Gas Index fell 3.6% to 357. The Philadelphia
Oil Service Index declined 3.2% to 130.
"Everyone knows first-quarter earnings will be soft," analysts
at Houston-based research firm Tudor Pickering Holt said about the
oil-services sector; the analysts have been tracking downward
revisions across Wall Street in the past few weeks.
Evidence of poor performances in the oil business came with
Russian oil giant Lukoil, which posted a fourth-quarter loss of
$1.6 billion. Lukoil is 20% owned by ConocoPhillips (COP), which
saw its shares fall nearly 4% to $39.65.
While J.P. Morgan analyst Michael LaMotte boosted his rating on
oil refiner Sunoco Inc. (SUN) to neutral from underweight, he cut
his first-quarter earnings target on the oil refiner to 56 cents a
share from 60 cents a share on low margins in the heating oil
business in March.
Looking past the first-quarter results, however, LaMotte sees
the possibility of a boost for Sunoco and other refiners during the
traditional ramp-up in the gasoline business.
Sunoco drew an upgrade to neutral from underweight, at J.P.
Morgan, with LaMotte boosting his 2009 earnings estimate for the
company to $3.15 to $2.98 a share and lifting his price target to
$34 a share from $33 a share.
Sunoco's valuation suggests a minimal downside, with shares
closing at $28.27 a share on Monday.
"Current price levels suggest a cheap call option on a potential
increase in margins/volumes this summer," LaMotte said in a note to
clients. "We continue to prefer Valero (VLO) because of its more
flexible crude slate, higher yields of clean products, and
meaningful Gulf Coast exposure."
Sunoco shares fell 15 cents to $28.13.
In the oil service sector, Baker Hughes Inc. (BHI) said the
number of drilling rigs actively exploring for or developing oil or
natural gas dropped by 440 to 2,313 in March from 2,753 in
February. In the U.S., the rig count fell by 215 to 1,105. Baker
Hughes shares retreated 4% to $29.10.
-By Steve Gelsi; 415-439-6400; AskNewswires@dowjones.com
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