As we all know oil price has been going up like crazy yesterday it closed at $76.30. But oil drilling and exploration company DO, RIG, GSF.... has been going down.... why? I ask this because I thought that when oil price increase, oil company stock increase as well right? I would like to know if the below supply chain is correct or not. Please correct me if I am wrong. 1) When oil price goes up LEADS TO ---> 2) Demand for oil decrease and company makes lesser profits LEADS TO ---> 3) Oil company stock goes down
The oil service stocks (I follow 2 ETFs, OIH and XLE) not only track the price of oil and distillates, they also track the overall market. Lately, especially yesterday, they have been slightly outperforming the overall market. It might pay to be long oil service stocks and short the overall market, but watch out if oil reverses once it hits $78 again.