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Options traders are signaling energy companies have become too cheap to pass up, even as they build up protection against a further drop in oil prices.
A collapse in global demand means oil may have more to fall, and hedging costs on an exchange-traded fund tracking crude climbed to the highest levels since June 2012. Yet wagers on the Energy Select Sector SPDR Fund haven?t kept up: They?re about 19 percent cheaper and reached a two-year low versus the United States Oil Fund LP (USO), data compiled by Bloomberg show.
After a 28 percent slump in valuations, energy companies are becoming too attractive to ignore. Oil executives have been snapping up shares in an insider-buying spree, betting that stocks including Transocean Ltd., Chesapeake Energy Corp. and Diamond Offshore Drilling Inc. have fallen too far.
?Crude oil futures could go a lot lower, but it wouldn?t necessarily drag down some of these companies with it,? Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut, said in by phone. ?There is a value to stocks, where that kind of argument is void in the crude futures market.?
Brent crude slipped below $65 a barrel yesterday for the first time since 2009 after OPEC said it expects next year to see the weakest demand for its crude in 12 years. A U.S. shale boom combined with weakening global demand has sent oil tumbling as much as 45 percent from a high in June.
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