Oil exploration stocks get convention and hurricane boost

At this point, anything is possible, but the action on August 27 was promising, even though it may have been associated with the activity in the energy markets brought on by the uncertainty of the trajectory and potential problems that may be caused to the U.S. oil and natural gas supply in the Gulf of Mexico.

Despite the hurricane rally, another reason for oil exploration stocks to rally may be the fact that the Democrats, especially House Speaker Nancy Pelosi, seem to be warming to the idea of increasing offshore oil drilling in the United States. To be sure, no matter what the reason, the charts are starting to look attractive.

XOP is an easy way to play the whole sector in a volatile market, as the ETF holds shares of Exxon (NYSE: XOM, Stock Forum), Conoco (NYSE: COP, Stock Forum), Chevron (NYSE: CVX, Stock Forum), Devon (NYSE: DVN, Stock Forum), and other oil and gas exploration companies, and offers the opportunity to spread the risk around the sector.

The ETF lost some 33% in July but made a double bottom and is now testing its 200-day moving average, with a move above 55.50 or so reversing the long-term downtrend.

There is plenty of bad news with regard to the potential for oil supplies in the short term (hurricane season) and the long term (geopolitical problems with Russia, Iran, and Venezuela). So it makes sense for exploration and production companies to become a potential leadership group, and to even become a potential rising sector in the midst of an otherwise difficult market, as money looks for a good story.

The downside is the inevitable volatility that will come from daily news events, and the short-term distortion offered by hurricane season.

Still, played from a technical standpoint, XOP looks very interesting and may not be a bad place to park a little money at the current time, especially if and when the GOP convention hits the oil drilling topic full force next week, especially if Gustav does significant damage to the supply in the Gulf.

Disclosure: Dr. Duarte owns shares in XOP.

ABOUT THE AUTHOR

Dr. Joe Duarte

Dr. Joe Duarte (www.joe-duarte.com) analyzes the markets on a daily basis and is widely quoted (CNBC, Marketwatch, Financial Wire, CNN.com and others). He is author of several books on the markets and sector investing. His latest “Trading Futures For Dummies” is now in stores online and in your neighborhood.

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