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Oil stocks: Time to invest?
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March 23, 1999: 2:20 p.m. ET
Rising oil prices boost petroleum stocks in March; some analysts say buy
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NEW YORK (CNNfn) - Oil stocks, trounced by investors during the last 18 months, have climbed this month, helped by a rise in petroleum prices.
Can this rise continue, and if so, are oil stocks a smart bet? Many analysts say yes. Factors that brought crude prices to 10-year lows -- oversupply and lackluster international demand -- should continue receding, strengthening earnings among hard-hit refineries, producers and drillers, according to analysts. And oil, unlike gold, shows few signs of losing its importance as a commodity.
Prices rise
Top oil officials in early March announced a deal to cut production, sending the price of a barrel of oil above $15 month for the first time in five months. At the same time, shares in giants like Atlantic Richfield (ARC) and modest outfits like Murphy Oil Corp. (MUR) of El Dorado, Ark., began climbing. While petroleum shares dipped Tuesday, when the OPEC deal was actually ratified, most are well off their recent lows.
As the price of oil goes …. 
oil stocks like ARCO often follow 
Looking ahead, Steven Pfeifer, international and domestic oil analyst at Prudential Securities, sees strengthening prices.
But Pfeifer's expectations are driven less by OPEC supply announcements -- which many view skeptically -- and more "by long-term fundamentals."
Most important of which, Pfeifer anticipates oil demand picking up as Asia emerges from financial crisis. On the supply side, he sees non-OPEC countries like the United States, Canada and Mexico scaling back production.
"We think things are heading back into a normal range," said Pfeifer, who forecasts a $17 barrel in the months ahead.
Asked which companies he likes, Pfeifer mentioned Chevron (CHV) and Texaco (TX).
Stocks, funds
For investors, there are more than 300 U.S. public companies in the oil and natural-gas industry. Further, Morningstar, the Chicago publisher, lists 30 mutual funds under its natural-resources category.
Not surprisingly, every one of those funds lost money during the last 52 weeks. American's Gas Index fell .31 percent, earning it the No. 1 performance slot among these funds. At the other end, State Street Research's Global Resources A fund dropped 58.91 percent.
But comparisons among these funds are misleading because not all invest strictly in petroleum companies. The T. Rowe Price New Era fund, for example, has 41 percent of its $988 million in assets invested in oil stocks. Its largest holding is retail giant Wal-Mart (WMT). New Era lost 16.71 percent in the last 52 weeks, placing it third in the Morningstar category
The fund's manager, Charles Ober, remains cautious about the short-term uptick in oil stocks, but sees good prospects for the sector over the long haul.
"I'd be very selective," said Ober. "But if you're willing to hold for two to three years, you're going to do well in these stocks."
Two of the fund's top petroleum holdings are Mobile (MOB) and Royal Dutch Petroleum (RD).
Looking ahead, Ober sees the price per barrel hitting the "upper teens" by year's end.
"Everything hinges on what OPEC will do and whether they will adhere to the cuts," he said.
Daniel Johnston, an oil consultant with a private practice in Dallas, has short-term optimism for the sector.
"There is good news in sight but there are some dark clouds on the horizon," said Johnston, referring to uncertainty over production cuts and the timing of increased Asian demand. Still, Johnston predicts an $18 barrel by summer.
Oil: Here to stay?
Forecasting commodity prices, of course, is tricky business. In the 1980s, who would have thought that gold, then worth $800 an ounce, would today be trading in the $284 range?
Most analysts agree, however, that the need for oil won't quickly ebb. To the dismay of some environmentalists, oil is still the leading source of heat, fuel, and machinery lubrication -- not to mention that petrochemicals are used to make everything from contact lenses to keyboards.
"None of the alternatives," said Johnston, the oil consultant, "are even close." 
-- by staff writer Jake Ulick
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