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Investing in Oil in 2013?

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  • Description

    Sterne Agee Managing Director Stephen Gengaro discusses the oil winners and losers of for this year.

  • Duration 4:39
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Guess what oil rising to its highest level in three months as exports from China or accelerate and reports of Saudi Arabia cut crude production.

Now we've got an analyst with the best ways to play higher oil prices this year.

Joining us now is -- engine -- out of Sterne -- managing director there welcome to -- Steven.

They carrier I'm doing great I I know anyone is here went on oil services sector right which is had a pretty good run over the last.

Six months bouts what is it -- 1617%.

Growth trajectory.

What is it go from here and what are the drivers.

So there's really three key drivers when we look at -- services one is.

The international markets which is really where you have a lot of crude oil plays -- -- from the Middle East go to Latin America.

Second we have the deep water markets which has a tremendous long term growth trajectory of geology is very good.

And the opportunities for increasing production for the -- companies is outstanding.

Five north American land side which has been weak for the last six months the gas side of things have been very week.

The oil rig count has actually come down recently we've got business is probably.

Bottoming out but not a lot of growth near term.

-- -- -- -- in this sector so the first thing I tied -- expect that there are something I don't know about the believe not a blip.

That tanker grounded off the waters in Alaska obviously brings back memories of BP this was a disaster avoided obviously there was no oil spill but what I'm getting at Steven is how vulnerable are these stocks to these massive disasters.

Well a couple of years ago we saw a little oil spill in the Gulf of Mexico right Condo and the players who were involved obviously BP and and Transocean.

And others the stocks were very affected by that.

I think they've taken greater precautions now than they have.

There's always risk of disaster to those risk of disaster for everything right -- The companies -- well we sure don't if you look at -- also requires.

Look at Halliburton for example which was involved in discussions -- but they have a strong -- -- they're very well short and and ultimately not really that effective from a financial perspective Wall Street obviously penalize them for awhile but not a -- from a financial perspective.

I want us how do you want me what are your specific picks in the sector -- oil services sector who do you like -- one.

So there's we have two or three favorites -- the first I'll talk about -- -- technologies in camera of a play on the deep water markets.

And the equipment that goes into producing oil and gas out of the deep water market content companies have an.

Tough year in 2012.

There are some positives we see both fundamentally with the huge rise in activity in the deep water over the next couple years -- -- also internally there's some things going knowledge are gonna help their margins expand.

In 2013 and probably even more significantly 2014.

You also have Halliburton on your list.

Halliburton is probably one looking at which it hit that -- probably a little more controversial because they do you have a big North American presence yet.

There are some things in in a flattening market in North America would probably modest growth there are some things -- Halliburton which.

We think lead to margin expansion in North America where the peers are probably flatter from a margin perspective.

And that really is some high cost inventory coming out of their system which can -- -- couple hundred basis point to the margin near term.

Again from the -- perspective here.

How closely do you happen to watch the price of oil when determining.

How to invest up by selling your holdings in energy sector stocks -- -- and we we we try to save that.

They're not that linked oral and then when you want to run the regression analyses.

The medium term it really comes -- to what are the oil company standing right word of the opportunities there they were ultimately drives the stock will really be.

Earnings growth which come from stunning levels welcome to -- matter short term credit over a longer term horizon.

The -- already issued a barrel going I think that what 1990 heroes and our right now before I think I.

We're basing.

Our assumptions on WTI crude right if you -- let's have a price thousands Texas intermediate.

In that 85 to 95 dollar -- if you get positive macroeconomic data point to certainly.

Chinese demand is an issue we think you get along -- Up to a certain point right you get this decrease in returns as -- are worried about.

Demand destruction from moral want to -- alive but in 85 to ninety regime and up to about one -- he worked in a very good sweet spot for the group.

Very can reflect something even an event united artists settles the Cuban cigars than a Jerry managing director thank you so much for being isn't here appreciating -- -- thank you.

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