Chevron is down from highs more than Exxon, but only by a little. But their capex spending in the past 4 years has been almost double Exxon's in terms of revenues. I believe mgt continues to invest capex (capacity) this year, in high-cost areas (for example but necessarily in this case: oil sands, deep ocean...etc...) With oil dropping to $30 from $140s, oil companies should have taken the indicator and stopped spending on capex. For some reason, oil people seem to think their commodity doesn't really go down, reminds me of Manhattanites thinking their island didn't allow falling prices either. Everyone in hedgie land still talking about peak oil, and how you can't get oil out of sand unless you spend $80 per barrel, therefore oil has to go back to $80. This is failed logic. Demand now more important in governing oil prices, and capacity is not changeable, very quickly at least, at this point. Demand is going down due to 1st inning of the destruction of american suburbs (and job losses), and capacity is still going up, even worse, at high cost to the developers. Very bad combo. light summer reading: "The Prize"...it pretty much outlines that no matter how good oil market looks at peaks, it always crashes horribly, as do prices. Prices always seem to go way lower than anyone can imagine. Should the price of oil sands or deep water exploration uncover some more big finds, this would be even worse for big oil. With demand going down rapidly, you don't need finds like the ones in the 1930s to destroy oil prices-- any success is bad for oil prices. Plus, there are more desperate countries reliant on selling oil for revenues than ever-- Russia, Venezuela, all the Arab nations. Oil companies don't have a lot of leverage either, which is actually a bad thing if you like oil for the anti-inflation play. Inflation is still probably a ways away, so for now, descreasing oil prices is still a bigger threat. But to the extent oil prices rise, it won't help big oil that much, whose stocks have already showed us the highs for oil prices in the $140s. Puts a nice cieling on the stocks.
$65.03 (03/20/09)
