A crude oil production cut of even 1 million barrels per day at
OPEC's upcoming emergency meeting is unlikely to reverse
slumping prices in the short term, analysts said Sunday, amid mounting calls by
several cartel members to take action to keep prices at the $80 per barrel
level.
That may be part of the reason that shares of many oil and gas
services providers fell along with crude oil prices last week and a Morgan
Keegan & Co. analyst downgraded a dozen companies on concerns about capital
spending cuts.
Analyst J. Michael Drickamer dropped his rating to "Outperform"
from "Market Perform" on companies including Pioneer Drilling
Co (NYSE:PDC)., Rowan Companies Inc.(NYSE:RDC), Allis-Chalmers Energy
Inc (NYSE:ALY)., StealthGas Inc. (Nasdaq:GASS) and Diamond Offshore Drilling Inc
(NYSE:DO).
Drickamer said rising uncertainty about the depth and length of
the recession is prompting many exploration and production companies to cut
their capital spending plans, which in turn is prompting oilfield service
companies to reconsider their capital expansion plans.
"While almost certainly this downgrade would have been better
timed three months ago, we do not believe that the bottom in oilfield service
stocks will be a 'V' shaped bottom, as a global recession now seems to be an
almost foregone conclusion," Drickamer wrote in a client note.
Oil plunged below $70 a barrel Thursday after the government
reported massive increases in U.S. crude and gasoline stockpiles amid slowing
demand. Light, sweet crude for November delivery dropped as low as $69.15 a
barrel on the New York Mercantile Exchange before gaining slightly.
According to an Associated Press report, a decision by the Organization of
Petroleum Exporting Countries to hold an emergency meeting next Friday clearly
signaled the group's concern that the recent pummeling of crude prices would
erode revenues needed to sustain government spending and weather broader fallout
from the global financial crisis.
The meeting had initially been moved up to mid-November, about a month
earlier than scheduled, but was pushed to Friday as the oil price dropped below
$70 per barrel.
Analysts said some key producers may be eying the meeting as the first step
in reasserting control over the market -- particularly as the cartel has argued
that record rallies earlier this year were driven more by speculation than
supply and demand.
"What they really want to do is position themselves now in a situation where
they can manage markets ...
