The improving economic scene, both here in the U.S. as well as worldwide, is the main driver of the current oil rally that has seen the commodity settling around the $80 per barrel level. But high levels of product inventories (particularly gasoline), along with still higher supplies, will limit any sustained crude gains, in our view. But way too many factors weigh on oil prices -- from OPEC decisions and geostrategic tensions to the value of the U.S. dollar and seasonal variables -- to definitively size up each one of them for their respective impact on prices. 

In its latest release, the Energy Information Administration (EIA) reported a higher-than-anticipated increase in crude stockpiles, which rose by 3.7 million barrels for the week ending Jan 8. This follows a 4-week trend of a steady decline in supplies, which slid by approximately 14 million barrels during the period, fueled by cold weather. At 331.0 million barrels, crude supplies remain 4.4 million barrels above the year-earlier level and above the upper limit of the average for this time of the year. As such, crude oil’s near-term fundamentals remain weak, to say the least.

Last week, the EIA released its ‘Short-Term Energy Outlook.’ It stated that world crude demand for 2009 was below the 2008 level, which itself was below the 2007 level -- the first time since the early 1980’s of two back-to-back negative growth years.

However, the agency also provided some positive news in this otherwise bleak supply-demand picture. According to EIA, the decline in oil demand bottomed out in the middle of 2009, as the world economy began to rebound in the later half of the year. The agency expects this recovery to continue in 2010 and 2011, contributing to global oil demand growth of 1.1 million barrels per day and 1.5 million barrels per day, respectively.

Recently, the Paris-based International Energy Agency (IEA), the energy-monitoring body of 28 industrialized countries, also affirmed its global oil demand forecast for 2010, citing growth in developing economies, led by China. IEA predicted that oil demand will average 86.3 million barrels a day in 2010, or 1.4 million barrels a day more than in 2009. 

Our view is that oil should be able to hold onto its recent gains and consolidate around current levels, provided this favorable economic view remains in place. But this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Natural Gas

The commodity has fared extremely well during the past month (Dec ’09), giving returns of over 35% on the back of sustained inventory drawdown. Natural gas prices ended 2009 at about $5.50 per million Btu (MMBtu), up more than 100% from their September 2009 lows.

Nevertheless, we are not fully convinced about the sustainability of natural gas’ recent gains, as the specter of a continued glut in domestic gas supplies (storage levels remain 4.4% above their five-year average) still weighs and the inventories remain higher compared to averages for this time of year. This translates into limited upside for natural gas-weighted companies and related support plays.

While drilling has declined significantly over the past 12 months, production has not slowed that much. The bulk of the decline in rig count has occurred in vertical gas drilling rigs, which drill straight down in search of conventional gas deposits. The number of vertical drilling rigs has dropped over 42% since the beginning of 2009.

On the other hand, horizontal/directional rig count (encompassing new drilling technology that have the ability to drill and extract gas from dense rock formations, also known as shale formations) have fallen at a much slower pace, with rig count down just 6% from the Jan 2009 levels. Consequently, gas production from the highly prolific shale plays have continued to surge, fueling the glut in domestic natural gas volumes over the last few years.

As a result, there is a feeling that more cuts in rig count may be required to bring the oversupplied market into equilibrium, particularly with gas inventories at fairly high levels and industrial demand still down sharply due to a lackluster economy.

OPPORTUNITIES

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil’s Petroleo Brasileiro S.A. ([url=http://www.zacks.com/stock/quote/pbr]PBR[/url]), or Petrobras, and China’s PetroChina Company Limited ([url=http://www.zacks.com/stock/quote/ptr]PTR[/url]), both of which remain well-placed to benefit from the country’s growing appetite for energy.

Petrobras, the largest integrated energy firm in Brazil, stands to benefit from the continuous demand growth in Brazil (expected to outperform developed countries in the next few years). Additionally, we expect the company’s expertise in deep-water operations, huge recent discoveries (which could double its resource base), and the growing domestic refined products market to fuel its medium-term earnings outlook.

China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players that can meet the country’s fast-growing energy needs. Being one of the two integrated oil companies in China, PetroChina is well-positioned to capitalize on these favorable trends.

Within the oilfield services group, we are positive on companies such as Cameron International ([url=http://www.zacks.com/stock/quote/cam]CAM[/url]) that derives about two-thirds of its revenue from outside North America, thereby playing an offsetting role to the relatively soft U.S. drilling scene. Cameron’s earnings outlook is improving, with estimates for this year and next on the rise. A healthy backlog of $5.1 billion, coupled with Cameron’s strong financial health, growing international operations, and the still favorable outlook for the deepwater offshore markets should help the company outperform its peers.

WEAKNESSES

We continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. A major sub-sector that fits that description is the onshore drillers. While we currently don't have any Underperform rated stocks in this group, we remain skeptical of land drillers like Nabors Industries ([url=http://www.zacks.com/stock/quote/nbr]NBR[/url]) and Patterson-UTI Energy ([url=http://www.zacks.com/stock/quote/pten]PTEN[/url]). Although we expect the land rig count to continue with its steady rise during 2010, the large amount of excess capacity in the sector will weigh on dayrates and margins well into the year.

We also maintain our cautious view on oil refiners, with utilization rates staying at historic lows for this time of the year amid too much supply of petroleum products in the face of sharply lower demand. As such, we have a bearish stance on companies like Sunoco Inc. ([url=http://www.zacks.com/stock/quote/sun]SUN[/url]), Tesoro Corp. ([url=http://www.zacks.com/stock/quote/tso]TSO[/url]), Valero Energy Corp. ([url=http://www.zacks.com/stock/quote/vlo]VLO[/url]) and Western Refining Inc. ([url=http://www.zacks.com/stock/quote/wnr]WNR[/url]), given that the overall environment for refining margins is likely to remain poor. The sharply lower refinery utilization (at just 81.3% of capacity) provides enough evidence that refineries are cutting back on production because the economy is still struggling on the demand side.

The improving economic scene, both here in the U.S. as well as worldwide, is the main driver of the current oil rally that has seen the commodity settling around the $80 per barrel level. But high levels of product inventories (particularly gasoline), along with still higher supplies, will limit any sustained crude gains, in our view. But way too many factors weigh on oil prices -- from OPEC decisions and geostrategic tensions to the value of the U.S. dollar and seasonal variables -- to definitively size up each one of them for their respective impact on prices. 

In its latest release, the Energy Information Administration (EIA) reported a higher-than-anticipated increase in crude stockpiles, which rose by 3.7 million barrels for the week ending Jan 8. This follows a 4-week trend of a steady decline in supplies, which slid by approximately 14 million barrels during the period, fueled by cold weather. At 331.0 million barrels, crude supplies remain 4.4 million barrels above the year-earlier level and above the upper limit of the average for this time of the year. As such, crude oil’s near-term fundamentals remain weak, to say the least.

Last week, the EIA released its ‘Short-Term Energy Outlook.’ It stated that world crude demand for 2009 was below the 2008 level, which itself was below the 2007 level -- the first time since the early 1980’s of two back-to-back negative growth years.

However, the agency also provided some positive news in this otherwise bleak supply-demand picture. According to EIA, the decline in oil demand bottomed out in the middle of 2009, as the world economy began to rebound in the later half of the year. The agency expects this recovery to continue in 2010 and 2011, contributing to global oil demand growth of 1.1 million barrels per day and 1.5 million barrels per day, respectively.

Recently, the Paris-based International Energy Agency (IEA), the energy-monitoring body of 28 industrialized countries, also affirmed its global oil demand forecast for 2010, citing growth in developing economies, led by China. IEA predicted that oil demand will average 86.3 million barrels a day in 2010, or 1.4 million barrels a day more than in 2009. 

Our view is that oil should be able to hold onto its recent gains and consolidate around current levels, provided this favorable economic view remains in place. But this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Natural Gas

The commodity has fared extremely well during the past month (Dec ’09), giving returns of over 35% on the back of sustained inventory drawdown. Natural gas prices ended 2009 at about $5.50 per million Btu (MMBtu), up more than 100% from their September 2009 lows.

Nevertheless, we are not fully convinced about the sustainability of natural gas’ recent gains, as the specter of a continued glut in domestic gas supplies (storage levels remain 4.4% above their five-year average) still weighs and the inventories remain higher compared to averages for this time of year. This translates into limited upside for natural gas-weighted companies and related support plays.

While drilling has declined significantly over the past 12 months, production has not slowed that much. The bulk of the decline in rig count has occurred in vertical gas drilling rigs, which drill straight down in search of conventional gas deposits. The number of vertical drilling rigs has dropped over 42% since the beginning of 2009.

On the other hand, horizontal/directional rig count (encompassing new drilling technology that have the ability to drill and extract gas from dense rock formations, also known as shale formations) have fallen at a much slower pace, with rig count down just 6% from the Jan 2009 levels. Consequently, gas production from the highly prolific shale plays have continued to surge, fueling the glut in domestic natural gas volumes over the last few years.

As a result, there is a feeling that more cuts in rig count may be required to bring the oversupplied market into equilibrium, particularly with gas inventories at fairly high levels and industrial demand still down sharply due to a lackluster economy.

OPPORTUNITIES

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil’s Petroleo Brasileiro S.A. ([url=http://www.zacks.com/stock/quote/pbr]PBR[/url]), or Petrobras, and China’s PetroChina Company Limited ([url=http://www.zacks.com/stock/quote/ptr]PTR[/url]), both of which remain well-placed to benefit from the country’s growing appetite for energy.

Petrobras, the largest integrated energy firm in Brazil, stands to benefit from the continuous demand growth in Brazil (expected to outperform developed countries in the next few years). Additionally, we expect the company’s expertise in deep-water operations, huge recent discoveries (which could double its resource base), and the growing domestic refined products market to fuel its medium-term earnings outlook.

China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players that can meet the country’s fast-growing energy needs. Being one of the two integrated oil companies in China, PetroChina is well-positioned to capitalize on these favorable trends.

Within the oilfield services group, we are positive on companies such as Cameron International ([url=http://www.zacks.com/stock/quote/cam]CAM[/url]) that derives about two-thirds of its revenue from outside North America, thereby playing an offsetting role to the relatively soft U.S. drilling scene. Cameron’s earnings outlook is improving, with estimates for this year and next on the rise. A healthy backlog of $5.1 billion, coupled with Cameron’s strong financial health, growing international operations, and the still favorable outlook for the deepwater offshore markets should help the company outperform its peers.

WEAKNESSES

We continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. A major sub-sector that fits that description is the onshore drillers. While we currently don't have any Underperform rated stocks in this group, we remain skeptical of land drillers like Nabors Industries ([url=http://www.zacks.com/stock/quote/nbr]NBR[/url]) and Patterson-UTI Energy ([url=http://www.zacks.com/stock/quote/pten]PTEN[/url]). Although we expect the land rig count to continue with its steady rise during 2010, the large amount of excess capacity in the sector will weigh on dayrates and margins well into the year.

We also maintain our cautious view on oil refiners, with utilization rates staying at historic lows for this time of the year amid too much supply of petroleum products in the face of sharply lower demand. As such, we have a bearish stance on companies like Sunoco Inc. ([url=http://www.zacks.com/stock/quote/sun]SUN[/url]), Tesoro Corp. ([url=http://www.zacks.com/stock/quote/tso]TSO[/url]), Valero Energy Corp. ([url=http://www.zacks.com/stock/quote/vlo]VLO[/url]) and Western Refining Inc. ([url=http://www.zacks.com/stock/quote/wnr]WNR[/url]), given that the overall environment for refining margins is likely to remain poor. The sharply lower refinery utilization (at just 81.3% of capacity) provides enough evidence that refineries are cutting back on production because the economy is still struggling on the demand side.

The improving economic scene, both here in the U.S. as well as worldwide, is the main driver of the current oil rally that has seen the commodity settling around the $80 per barrel level. But high levels of product inventories (particularly gasoline), along with still higher supplies, will limit any sustained crude gains, in our view. But way too many factors weigh on oil prices -- from OPEC decisions and geostrategic tensions to the value of the U.S. dollar and seasonal variables -- to definitively size up each one of them for their respective impact on prices. 

In its latest release, the Energy Information Administration (EIA) reported a higher-than-anticipated increase in crude stockpiles, which rose by 3.7 million barrels for the week ending Jan 8. This follows a 4-week trend of a steady decline in supplies, which slid by approximately 14 million barrels during the period, fueled by cold weather. At 331.0 million barrels, crude supplies remain 4.4 million barrels above the year-earlier level and above the upper limit of the average for this time of the year. As such, crude oil’s near-term fundamentals remain weak, to say the least.

Last week, the EIA released its ‘Short-Term Energy Outlook.’ It stated that world crude demand for 2009 was below the 2008 level, which itself was below the 2007 level -- the first time since the early 1980’s of two back-to-back negative growth years.

However, the agency also provided some positive news in this otherwise bleak supply-demand picture. According to EIA, the decline in oil demand bottomed out in the middle of 2009, as the world economy began to rebound in the later half of the year. The agency expects this recovery to continue in 2010 and 2011, contributing to global oil demand growth of 1.1 million barrels per day and 1.5 million barrels per day, respectively.

Recently, the Paris-based International Energy Agency (IEA), the energy-monitoring body of 28 industrialized countries, also affirmed its global oil demand forecast for 2010, citing growth in developing economies, led by China. IEA predicted that oil demand will average 86.3 million barrels a day in 2010, or 1.4 million barrels a day more than in 2009. 

Our view is that oil should be able to hold onto its recent gains and consolidate around current levels, provided this favorable economic view remains in place. But this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Natural Gas

The commodity has fared extremely well during the past month (Dec ’09), giving returns of over 35% on the back of sustained inventory drawdown. Natural gas prices ended 2009 at about $5.50 per million Btu (MMBtu), up more than 100% from their September 2009 lows.

Nevertheless, we are not fully convinced about the sustainability of natural gas’ recent gains, as the specter of a continued glut in domestic gas supplies (storage levels remain 4.4% above their five-year average) still weighs and the inventories remain higher compared to averages for this time of year. This translates into limited upside for natural gas-weighted companies and related support plays.

While drilling has declined significantly over the past 12 months, production has not slowed that much. The bulk of the decline in rig count has occurred in vertical gas drilling rigs, which drill straight down in search of conventional gas deposits. The number of vertical drilling rigs has dropped over 42% since the beginning of 2009.

On the other hand, horizontal/directional rig count (encompassing new drilling technology that have the ability to drill and extract gas from dense rock formations, also known as shale formations) have fallen at a much slower pace, with rig count down just 6% from the Jan 2009 levels. Consequently, gas production from the highly prolific shale plays have continued to surge, fueling the glut in domestic natural gas volumes over the last few years.

As a result, there is a feeling that more cuts in rig count may be required to bring the oversupplied market into equilibrium, particularly with gas inventories at fairly high levels and industrial demand still down sharply due to a lackluster economy.

OPPORTUNITIES

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil’s Petroleo Brasileiro S.A. (PBR), or Petrobras, and China’s PetroChina Company Limited (PTR), both of which remain well-placed to benefit from the country’s growing appetite for energy.

Petrobras, the largest integrated energy firm in Brazil, stands to benefit from the continuous demand growth in Brazil (expected to outperform developed countries in the next few years). Additionally, we expect the company’s expertise in deep-water operations, huge recent discoveries (which could double its resource base), and the growing domestic refined products market to fuel its medium-term earnings outlook.

China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players that can meet the country’s fast-growing energy needs. Being one of the two integrated oil companies in China, PetroChina is well-positioned to capitalize on these favorable trends.

Within the oilfield services group, we are positive on companies such as Cameron International (CAM) that derives about two-thirds of its revenue from outside North America, thereby playing an offsetting role to the relatively soft U.S. drilling scene. Cameron’s earnings outlook is improving, with estimates for this year and next on the rise. A healthy backlog of $5.1 billion, coupled with Cameron’s strong financial health, growing international operations, and the still favorable outlook for the deepwater offshore markets should help the company outperform its peers.

WEAKNESSES

We continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. A major sub-sector that fits that description is the onshore drillers. While we currently don't have any Underperform rated stocks in this group, we remain skeptical of land drillers like Nabors Industries (NBR) and Patterson-UTI Energy (PTEN). Although we expect the land rig count to continue with its steady rise during 2010, the large amount of excess capacity in the sector will weigh on dayrates and margins well into the year.

We also maintain our cautious view on oil refiners, with utilization rates staying at historic lows for this time of the year amid too much supply of petroleum products in the face of sharply lower demand. As such, we have a bearish stance on companies like Sunoco Inc. (SUN), Tesoro Corp. (TSO), Valero Energy Corp. (VLO) and Western Refining Inc. (WNR), given that the overall environment for refining margins is likely to remain poor. The sharply lower refinery utilization (at just 81.3% of capacity) provides enough evidence that refineries are cutting back on production because the economy is still struggling on the demand side.

Yesterday, shaky nerves on the Street sent major stock indexes off their 14-month peaks.  The DJIA retreated 49 points, or 0.5%, to close at 10,452, the tech-heavy NASDAQ gave up 0.5% to finish at 2,201, and the broader S&P500 index closed off 0.6%, at 1,108.  On the NYSE, declining issues were ahead of those that advanced three-to-two on volume of 1.18 billion shares.  Treasury yields advanced for the fifth straight day, as the price of the 10-year fell 11/32 and its yield rose to 3.594%.  The greenback advanced against a basket of currencies as the ghost of inflation came to haunt investors.  

Moody's (NYSE:MCO) issued a report on sovereign risk subtitled, "Fasten Your Seat Belts: Tumultuous Times Ahead," as governments stretch to pay for bulging budget deficits, making the US currency a relative, safe haven investment.

Gold prices eased 0.2% on Tuesday to $1,123.  Crude prices registered a 1.7% advance, ending their worst losing streak in eight years.  Meanwhile, OPEC lifted its forecast for 2010 global oil demand by 70,000 bpd to an average of 85.1 million bpd.  However, contrary to expectations of a drop of 2 million barrels, an industry inventory survey reported a surprise gain in crude stockpiles last week of 920,000 barrels. 

Nine of the ten S&P 500 industry sectors ended lower yesterday, led by a 1.5% fall in financials on worries of credit card delinquencies as well as the likelihood of higher interest rates coming sooner than later.  On the DJIA, Bank of America (NYSE:BAC) led the decliners with a 2.8% decline, followed by a 2.2% fall in JP Morgan (NYSE:JPM) shares.  Bank of America reported 13% write offs of November credit card debt, the largest percentage of the major issuers, although at a reduced rate from the prior month.  JP Morgan wrote off 8.8% in November, versus the prior month’s 8.02%.

Today's session may see lackluster trading as traders await the roll-out of Fed policy at 2:15 PM.  Premarket futures point to a higher open.

Chicago, IL – December 11, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sunoco Inc. (SUN), Tesoro Corp. (TSO), Western Refining Inc. (WNR), ConocoPhillips (COP) and ExxonMobil Corp. (XOM).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Thursday’s Analyst Blog:

Oil Slides, Fuel Inventories Rise

The overall demand picture remains weak, as reflected by the dip in the total refined products supplied over the last four-week period, a proxy for overall petroleum demand. It fell by 3.0% from the year-earlier period, with gasoline up 1.2%, distillates (includes diesel) down 8.3% and jet fuel down 0.7%.

With gasoline and other petroleum product inventories rising last week, we take this as an indication that demand in the world's biggest economy remains slack. In particular, at this time of the year, distillates see rising demand as winter approaches in the northern hemisphere. As a result, following the bearish EIA release, oil prices fell below the $71 per barrel level, the lowest in two months. Additionally, the unexpected drop in crude stockpiles was triggered by falling imports rather than a much-awaited pick-up in oil demand.

As such, we prefer to maintain our cautious stance on oil refiners like Sunoco Inc. (SUN), Tesoro Corp. (TSO) and Western Refining Inc. (WNR), given that the overall environment for refining margins is likely to remain poor going into 2010.

Companies like ConocoPhillips (COP) and ExxonMobil Corp. (XOM) -- oil majors that have significant refining operations -- are also expected to remain under pressure until pricing and demand improve.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – December 11, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sunoco Inc. (SUN), Tesoro Corp. (TSO), Western Refining Inc. (WNR), ConocoPhillips (COP) and ExxonMobil Corp. (XOM).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Thursday’s Analyst Blog:

Oil Slides, Fuel Inventories Rise

The overall demand picture remains weak, as reflected by the dip in the total refined products supplied over the last four-week period, a proxy for overall petroleum demand. It fell by 3.0% from the year-earlier period, with gasoline up 1.2%, distillates (includes diesel) down 8.3% and jet fuel down 0.7%.

With gasoline and other petroleum product inventories rising last week, we take this as an indication that demand in the world's biggest economy remains slack. In particular, at this time of the year, distillates see rising demand as winter approaches in the northern hemisphere. As a result, following the bearish EIA release, oil prices fell below the $71 per barrel level, the lowest in two months. Additionally, the unexpected drop in crude stockpiles was triggered by falling imports rather than a much-awaited pick-up in oil demand.

As such, we prefer to maintain our cautious stance on oil refiners like Sunoco Inc. (SUN), Tesoro Corp. (TSO) and Western Refining Inc. (WNR), given that the overall environment for refining margins is likely to remain poor going into 2010.

Companies like ConocoPhillips (COP) and ExxonMobil Corp. (XOM) -- oil majors that have significant refining operations -- are also expected to remain under pressure until pricing and demand improve.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Chicago, IL – November 30, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Sunoco Inc. (SUN), Tesoro Corp. (TSO), Western Refining Inc. (WNR), ConocoPhillips (COP) and ExxonMobil Corp. (XOM).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Friday’s Analyst Blog:

Mixed Signals in U.S. Oil Demand

The higher-than-expected crude stockpile drop and the encouraging rise in the distillate inventories has raised hopes that the worst of the recession-induced slump may be over and demand is picking up. However, it did little to strengthen the price of the commodity, as higher-than-expected increases in gasoline more than offset this positive news. Moreover, the drop in petroleum stocks was triggered by weak refinery activity rather than a much-awaited pick-up in oil demand.

As such, we prefer to maintain our cautious stance on oil refiners like Sunoco Inc. (SUN), Tesoro Corp. (TSO) and Western Refining Inc. (WNR), given that the overall environment for refining margins is likely to remain poor going into 2010.

Companies like ConocoPhillips (COP) and ExxonMobil Corp. (XOM) -- oil majors that have significant refining operations -- are also expected to remain under pressure until pricing and demand improve.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

On Thursday, the Dow Jones industrial average rose 80.26 points, or 0.8%, to 9,627.48, its highest close since October 6.  The broader S&P 500 index advanced 10.77 points, or 1%, to 1,044.14, its first five-day climb since November.  The Nasdaq composite index rose 23.63 points, or 1.2%, to 2,084.02.  With traders eschewing safe havens, yield on the benchmark 10-year Treasury note fell to 3.35%. The yield on the 30-year notes declined to 4.20%.

As the holiday-shortened week comes to an end today, investors would look toward extending gains into a sixth consecutive day, buoyed partly by strong reports from China.  This morning’s stock futures show shares opening with modest gains.  Dow Jones industrial average futures rose 9, or 0.1%, to 9,614.  Standard & Poor's 500 index futures rose 1.60, or 0.2%, to 1,039.00, while Nasdaq 100 index futures rose 3.00, or 0.2%, to 1,685.75.

Treasury Secretary Geithner was more forthcoming in a speech before Congress Thursday, as he noted the strategy has shifted to preparing for future growth, adding the economy is back from the brink.  Geithner advised, "We must continue reinforcing the recovery until it is self-supporting and led by private demand."
  
Thursday saw all ten S&P500 sectors moving higher, led by 2.2% gains in telecom shares, 1.7% in basic materials, 1.6% in oil and gas, 1.4% in tech, and 1.2% in consumer services.  On the New York Stock Exchange, volume picked up to 1.49 billion shares as advancing issues outpaced decliners by a 3-to-1 margin.

Among DJIA components, Procter & Gamble (NYSE:PG) shares jumped 4.2% after the company raised its 2010 profit outlook to $3.99 to $4.12.  Shares in Disney (NYSE:DIS) jumped 5.2% after the company reported strengthening ad markets, and hopes from improving consumer-spending trends.  Technology issues rose on increased estimates for top and bottom line results from Texas Instruments (NYSE:TXN) and ASML Holdings (NASDAQ:ASML); on the DJIA Cisco (NASDAQ:CSCO) shares advanced 3.5%. Cigna Corp (NYSE:CI) led healthcare issues higher even as President Obama's speech appeared to have garnered support for his much-talked healthcare initiative.

News from China indicated a V-shaped recovery underway in that country as the National Statistics Bureau reported investments, industrial output and credit expanded in August, alleviating to some extent fears that the government was clamping down on credit growth. Chinese Premier Wen Jiabao noted, "China's economic rebound is unstable, unbalanced and not yet solid," adding, "We cannot and will not change the direction of our policy when conditions aren't appropriate."  The Shanghai Composite closed up 2.2% Friday, with the Hang Seng at its highest in over a year.

On Monday, June 29, Paris-based International Energy Agency (IEA) reduced its 5-year world oil demand outlook, citing the impact of the ongoing economic slump. In a report, the energy-monitoring body of 28 industrialized countries estimated that global oil demand would rise by a meager 0.6% (or 540,000 barrels per day) annually between 2008 and 2014, reaching 89 million barrels a day in 2014 from last year's 85.8 million barrels a day. IEA's latest medium-term report is based on expectations of a 5% annual economic growth from 2012 onwards by the International Monetary Fund.

The energy agency's previous forecast, issued in December 2008, predicted annual growth of 1.6% (or 1 million barrels per day). In its `lower GDP scenario', which assumes that a rebound in the global economy will be restricted to 3% a year, IEA sees oil demand contract at 0.2% on a yearly basis to average 84.9 million barrels a day in 2014. However, irrespective of the recovery scenario, the report said that growth in oil demand over the forecast period will be driven by non-OECD countries, with oil consumption declining in OECD countries (an organization of developed countries).

The IEA warned that demand can contract even more depending on the pace of the global economic recovery from the worst recession in over 50 years. The economic crisis has crippled oil demand in developed economies and slowed growth in China and India. According to the agency, there is also the looming possibility of a supply crunch as recession forces companies to cut their E&P capital expenditures and defer new projects. As new oil projects are put on the backburner, the IEA estimates global oil capacity to go up by 4.2 million barrels a day by 2014, as against its previous estimate of 5.5 million barrels a day.

The agency also cut its supply forecasts and now expects output from non-OPEC countries to drop 400,000 barrels a day in the 2008-2014 period (in particular from Mexico and Russia), compared with a previous forecast of an increase of 1.5 million barrels a day. IEA said that the current rally in commodity prices (oil prices have recovered from a low of $32.40 per barrel in December 2008 to the current level of roughly $70 per barrel) could further damage the nascent economic recovery.

In this current turbulent market environment, we advocate the relatively low-risk energy conglomerate business structures of the large-cap integrateds, with their fortress balance sheets, ample free cash flows even in a low oil price environment, and growing dividends. Our preferred names in this group remain Exxon (XOM) and Chevron (CVX).

I have some more discussion at the Washington Post as well as the following links:

• Full statement of my testimony
• Background supportive research
• Website for the JEC session

The deteriorating global economic scene is continuing to weigh on the outlook for oil demand. And while there are other forces at play as well (the financial crisis and dollar's strength, to name just two), the shaky foundation of the commodity's demand has been the most significant factor in the roughly $100 fall in oil price since July '08.

Given this backdrop, recent projections from the International Energy Agency (IEA) and the Energy Information Administration (EIA) provide useful data points. The former is the energy watchdog of the Organization for Economic Co-operation and Development (OECD), while the latter is basically the statistical arm of the U.S. Department of Energy.

Here are some of the key points from both reports.

• Both the agencies see global oil consumption falling in 2008 -- the IEA expects total global consumption to drop by 200,000 Bbl/d [barrels per day], while the EIA is looking for a 50,000 Bbl/d drop. This would be the first drop in global oil demand since 1983.
• There is a clear divergence between the two agencies on next year's demand -- the EIA sees a 450,000 Bbl/d drop, while the IEA expects next year's demand to be up by 400,000 Bbl/d.
• The divergence reflects different views of the global economy -- The EIA forecast reflects the global GDP growing by 0.5% next year (slashed from 1.9% last month), while the IEA's outlook is based on IMF projections of ~3% growth next year. On the whole, both the agencies see contracting economic output in the OECD markets and a fair amount of resilience in the emerging world, with the IEA more optimistic of the two.
• On the supplies front, non-OPEC supplies are projected to drop this year but grow next year, with the primary growth markets being Azerbaijan, Brazil and the U.S. Key risks to non-OPEC supplies include the usual suspects (project delays and unexpected disruptions), falling oil prices and the impact of capital markets turmoil.
• OPEC is scheduled to meet again on December 17 to evaluate its earlier announced cuts of 1.5 million Bbl/d. While it's difficult to evaluate the level of compliance precisely, the overall weak market conditions point towards a high degree of compliance. As a result, excess production capacity has been steadily going up -- expected to reach 4 million Bbl/d next year, double the 2007 average.

We expect prices to start consolidating around current levels, though we concede that negative indicators on a number of key variables -- particularly the duration and extent of the U.S economic downturn and the demand outlook in the non-OECD markets -- could further strengthen the downward bias.

* While downside risks still remain, particularly if the global economic weakness turns out to be more protracted than currently anticipated, oil prices are expected to consolidate around current levels.
* We are strong believers in the secular underpinnings of the oil cycle -- the current downturn is just a pause in a long secular cycle that still has plenty of room to go.
* The large-cap integrateds remain the best positioned given their energy conglomerate business structures, stellar balance sheets, substantial free cash flows, and growing dividends.
* Growing domestic production and moderating demand, particularly from industrial consumers, is expected to weigh on natural gas prices for the remainder of this year and next.
* The tentative natural gas price outlook, which preceded the credit-market related turmoil of the past month, is expected to cap the upside in the exploration and production (E&P) space. This group also has credit market exposure.
* The underlying business fundamentals of integrated oilfield service companies and deepwater-capable drilling contractors still remain robust. Oil prices will need to drop even further and then stay there to materially impact their operating outlook.

This outlook reflects credit markets getting back to normal over the coming days, a three-to-four-quarter period of negative economic growth in the OECD markets, and decelerated growth in the emerging world. An outcome worse than this outlook represents a clear downside risk.

We believe that the large-cap integrated oil companies offer compelling values. Our best picks remain Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). These stocks are currently trading at multi-year lows, exceptionally cheap both in relative as well as absolute terms, and offer more upside potential than downside risk. These companies have fortress balance sheets (Exxon is AAA rated and has more cash on its balance sheet than debt), generate strong cash flows, and pay out growing dividends.

The global integrated oilfield service names are also very attractive. Our preferred names in this space are Halliburton (HAL), Baker Hughes (BHI), Smith International (SII) and National Oilwell Varco (NOV).

Another group hit hard by the recent turmoil is the offshore drillers, particularly those capable of drilling in the deepwaters. Our preferred deepwater drillers remain Transocean (RIG) and Diamond Offshore (DO). Another offshore driller with an underappreciated deepwater drilling portfolio is Pride (PDE).

All of these have been hit hard by the combination of commodity-price weakness and credit market turmoil. But these operators do not require peak-cycle commodity prices to generate stellar results and have limited or no credit-market exposure.

Sheraz Mian is a senior analyst covering the oil & gas industry for Zacks Equity Research.
"PRDE" Free Stock Analysis: Buy? Sell? Hold?
"NOI" Free Stock Analysis: Buy? Sell? Hold?
"SII" Free Stock Analysis: Buy? Sell? Hold?
"DO" Free Stock Analysis: Buy? Sell? Hold?
"SD" Free Stock Analysis: Buy? Sell? Hold?
"J" Free Stock Analysis: Buy? Sell? Hold?
"P" Free Stock Analysis: Buy? Sell? Hold?
"RIG" Free Stock Analysis: Buy? Sell? Hold?
"HAL" Free Stock Analysis: Buy? Sell? Hold?
"BKO" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

The current market turmoil has been particularly brutal in the oil space, with all sub-sectors getting down to levels not seen in years. While expectations of softening oil demand over the coming quarters and broad credit-market concerns have been the primary reasons for the sector's woes, the sell-off has by all measures been overdone.

This indiscriminate sell-off has made the risk-reward trade off of a number of sub-sectors very compelling, in our view. Our best ideas are in the integrated, oilfield service and offshore drilling sub-sectors.

• While downside risks still remain, particularly if the global economic weakness turns out to be more protracted than currently anticipated, oil prices are expected to consolidate around current levels.
• We are strong believers in the secular underpinnings of the oil cycle -- the current downturn is just a pause in a long secular cycle that still has plenty of room to go.
• The large-cap integrateds remain the best positioned given their energy conglomerate business structures, stellar balance sheets, substantial free cash flows, and growing dividends.
• Growing domestic production and moderating demand, particularly from industrial consumers, is expected to weigh on natural gas prices for the remainder of this year and next.
• The tentative natural gas price outlook, which preceded the credit-market related turmoil of the past month, is expected to cap the upside in the exploration and production (E&P) space. This group also has credit market exposure.
• The underlying business fundamentals of integrated oilfield service companies and deepwater-capable drilling contractors still remain robust. Oil prices will need to drop even further and then stay there to materially impact their operating outlook.

We believe that the large-cap integrated oil companies offer compelling values. Our best picks remain Exxon Mobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). These stocks are currently trading at multi-year lows, exceptionally cheap both in relative as well as absolute terms, and offer more upside potential than downside risk. These companies have fortress balance sheets (Exxon is AAA rated and has more cash on its balance sheet than debt), generate strong cash flows, and pay out growing dividends.

The global integrated oilfield service names are also very attractive. Our preferred names in this space are Halliburton (HAL), Baker Hughes (BHI), Smith International (SII) and National Oilwell Varco (NOV).

Another group hit hard by the recent turmoil is the offshore drillers, particularly those capable of drilling in the deepwaters. Our preferred deepwater drillers remain Transocean (RIG) and Diamond Offshore (DO). Another offshore driller with an underappreciated deepwater drilling portfolio is Pride (PDE).

All of these have been hit hard by the combination of commodity-price weakness and credit market turmoil. But these operators do not require peak-cycle commodity prices to generate stellar results and have limited or no credit-market exposure.