You have to admireoil investors animal spirits: it doesnt take much to unleash the beast within. Last Fridays sudden 10% oil price surge, one of itsbiggest-ever daily rallies, instantlybrought out the bulls. It was a pleasant shock to see struggling oil stocksposting double-digit one-day gains.
Troubled waters
AIM-listed oil appraisal and development companyXcite Energy Limited (LON: XEL) was one of the standout stocks, up a roaring18.68% in a day. Tullow Oil (LON: TLW) also enjoyed some much-needed respite, soaring 14.4%. All it tookwas a few comments from the chairman of Saudi Armco calling the oil price collapse irrational, dovishremarks from Mario Draghi, and a rash of shorttraders closing their positions andbanking their fat profits and suddenly, oil wasback.
The crash has arguably been the standout economic event of the last 18 months. Few expected it, but many are keento profit by buying into the rebound early. There are plenty of itchy trigger fingers outthere and on Friday they started blazing away.Were they wise?
So Xcited
Despite its Friday comeback, Xcite trades at just 12.5p, way below its 52-week high of 44.5p. Management reckonsit canexploit its key Bentley oil fields with total lifecycle costs of $35 a barrel. But this hope waslooking desperate with oil at $28, scarcely much better at todays $32. It willclearly take a sustained upward surge in the oil price to make the sums add up to a profitable future.
Xcite boasteda cash balance of $27.9m at the end of September, but has torepay $139m of bonds by 30 June 2016. Commercial discussions with a development partner continue butit cant be easy withinvestors rushingout of oil instead of diving in. Fridays share price surge shows that investors still have some faith in the stock, although it retreated4.63% on Monday. The oil price will recover at some point but time isnt on Xcites side. Frankly, Im amazed so many got excited last week given its precarious prospects.
Tough road for Tullow
Despite Fridays short-lived excitement, at todays 140p Tullow Oil is tradingway below its 52-week high of 456p. Itneeds oil to rise to at least $60 or $70 and it surely has a long road ahead of it before the price hits those kind of levels.
That said,earnings per share are forecast to rise an incredible 851% this year withitsTEN asset in Ghana setto start pumping in July or August. This should help to boost pre-tax profits from 67.72m to aforecast 142.2m. Tullow recently posted2015 revenue of $1.6bn and pre-tax operating cash flow of $1bn, with management flagging up financial headroom of $1.9bn. Its certainly a safer long-term bet than Xcite, but still a gamble in todays topsy-turvy world.
Both stocks are at the mercy of events they cant control and despite Fridays excitement, I fearthe bulls will vanishjust as quicklyas they appeared.
There are less risky opportunities outside of the trouble oil sector today, the trick is knowing where to find them.
Well here’s the perfect place to start. Motley Fool analysts have scoured the market for the very best opportunities and have found a hidden gem. They call it 1 Small-Cap Stock Flying ‘Under The Radar’.
They consider this stock to be one of the UK’s “top small-caps” whose potential upside, they reckon, could be as great as 45%!
They believe the sky’s the limit for this fast-growing company, which has already delivered a powerful return.
To find out the identity of the Fool’s top small-cap stock pick, simply click here to download your FREE report. This no obligation report will be yours to read in moments.