Oil Stocks in Spotlight Amid Slump in Crude Prices, Brexit

Britain’s Decision Sinks Offshore Stocks

Like their larger brethren, offshore stocks Transocean LTD (NYSE:RIG) and Seadrill Ltd (NYSE:SDRL) are also deep in the red as traders take a risk-off approach. Given that many offshore stocks need Brent prices of $60-$80 per barrel to do well, they have traditionally had higher betas than companies with lower debt and lower costs of production. If crude prices move further away from $60-$80 per barrel, some of the companies with huge debt burdens will likely need to dilute their equity more to survive. Although some traders don’t think the uptrend in crude prices is over just yet, the ‘Brexit’ decision yesterday certainly makes $60-$80 Brent look more remote and the ‘risk-off’ sentiment in the markets absent any sort of central bank stimulus makes the risk-reward of being long the offshore stocks at current price points less compelling for many short term traders.

Among the funds we track, 39 funds amassed $597.67 million worth of Transocean LTD (NYSE:RIG)’s stock, which accounted for 18.00% of the float on March 31, versus 31 funds and $578.45 million respectively on December 31. At the same time, 22 funds were long Seadrill Ltd (NYSE:SDRL) at the end of the first quarter.

Disclosure: none