OIL AND GAS STOCKS

Oil and Gas sector is considered to be a bullish area, lots of activity seems to be going on in this sector. This is due mainly to the fact that most of the tier-2 companies in the Oil and Gas sector worldwide are conducting their research and development work more aggressively and spending more in exploration and positioning themselves in a stronger way when it comes to future oil reserves. Where as, it has been noticed that all big companies in the Oil and Gas sector are using more than half of the percentage of their increase cash flow on repurchasing the shares and paying dividend’s. In a way it is good for an investor but in the long run it is certainly not good for the company performance. Long term investors who want to invest in the Oil and Gas sector should, in fact, look for tier-2 companies as the growth prospective is great and stocks are medium priced. Those investors that are looking for a short term investment point of view should indeed stick to tested stocks of large companies in this sector.

Currently, crude prices for oil has come down and looks like it will go further down, which is a good sign for the market as well oil companies. It will certainly show the positive effects over the stocks. Otherwise, it’s a consensus thought among the investors and traders that as the oil prices goes up, the United States economy slows and if it rises too high, it can bring down the economy and create a recession. An example is the previous oil shocks in 1973-74 and 1979 that preceded United States economic recession.

On the short term view for the oil and gas stocks; keeping in the view of a smooth demand and supply scenario and crude prices going down as well, we can see good appreciation in oil and gas stocks in the second week of the last month of the year. Most favorable pick are Chevron, Valero and Petro China.

If we see basic parameters of the market, the sub-prime issue is dragging the markets toward the bearish side and the impact of the United States sub-prime issue is looming large over all the major markets around the globe. So in large, markets depend on the two major factors, one is basic fundamental of the economy and the market and other sentimental effects of the market. The basic fundamentals of the United States market and economy seems to be going very well and has shown an unprecedented and strengthening economy continuously for the past few years. On the other hand, if we see the sentimental effects, sub-prime issues have affected the investors at large, which is why we see the market as so volatile. It seems that the federal government is showing response to the situation and will provide a correction for this issue. Looking at all aspects of the market, Oil and Gas stocks will continuously gain for a predominantly longer period. There is a greater scope of appreciation for an investment in tier-2 companies as compare with large companies.