I heard some of the large oil stock holders are quietly dumping their shares?

Question

Could this be the begining of a crash simular to the tech.crash

Answer 1

Well , If you heard it , it must not be quite anymore is it ?

Answer 2

I think that this may be the beginning of a somewhat moderate crash, but nothing like the tech crash you speak of.  Some of the bigger investors are dumping a small percentage of their shares to cash in on the record, or near record, prices recently experienced.  Just like speculators can drive the price of oil up, they can also bring it down.  I think of it like "reverse" speculation.  They worry about the price crashing, so they cautiously dump small percentages to get the cash from incredibly over-inflated prices.

They're doing this in response to the US's slumping economy and to China's expected slowdown.  Also, the sell off of $10 witnessed today was a culmination of the items mentioned above in addition to the lift on the executive ban for offshore drilling.  

So, I don't expect any kind of "bubble burst" when it comes to oil prices.  When they finally do start to fall, it will happen steadily and gradually.

Just my opinions.  Watch the "oil crisis" situation very closely day to day.  Hope this helps, and gives you something to consider.

Answer 3

Maybe it's just that their stocks are so high they think it's a good time to sell, and since the ban on offshore drilling has been lifted, they think oil prices may start coming down.

Answer 4

"They worry about the price crashing, so they cautiously dump small percentages to get the cash from incredibly over-inflated prices."...Please don't listen to the above nonsense!

Crude Oil on 7/15 experienced its most precipitous drop in about 17 years! But there is a difference between Oil (the commodity) and oil stock holders. Crude is more often used as a speculation and hedging tool than oil related stocks. This means that as such speculation unwinds, the correction to the commodity is likely to become sharp and not "quiet" or in "small percentages".

Over the last few months, much of the trading and volatility attributed to Oil contracts has been attributed to quant desks and hedge funds. With Thursday's contract expiry nearing, volatility spikes are expecting to begin. And with Bernanke front and center with Congress and the House tomorrow, in addition to the ruling on  offshore drilling, we are being exposed a number of catalysts to prompt profit-taking and the unwinding of speculation/hedging trades.

Keep in mind again, there is a MAJOR difference between OIL and OIL stocks. Take Exxon Mobile for example (XOM)--I think we can agree this is the most popular oil stock.....For the last 6 months, USO (the U.S. Oil Fund) has risen nearly 60% until last week, while XOM actually fell in value about 5%!!!!!

There has been little correlation between the commodity itself and related stocks simply because of the above reasons of speculation and hedging. So while Oil itself sharply corrects, the related stocks aren't in as much danger of a correction. Rather the stocks will trade similarly to the overall market. One of the biggest proxies for oil related stocks is the Energy etf (XLE).

Bottom Line:  Much of the economic catalysts on the plate at the time being are causing a contraction in speculation of Oil (the commodity). We are likely to see continued panic selloffs the rest of the week. But trading oil stocks the same way as the commodity is a no-no. Weakness in oil should cause a weakness in the stocks, but no where near to the same degree, so watch the XLE.

PS: When rumors about liquidation appear, it is usually such heavy hitters that are trying to get long for another leg up that will squeeze most of the retail investors trying to jump on the bandwagon. The only way Oil collapses is if we begin to see an economic rebound----soooo sooo sooo not likely in the near-term (i.e. Bank stocks continually getting pounded...look for Citi's earnings report to be a good indication of where we stand later this month because they will need to bring much of the off balance sheet assets back in with a good deal of losses attached.)