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Oil Slick Hits Coast and Stocks

Oil service names weighed heavily on the S&P 500 as oil from the massive spill in the Gulf of Mexico oozed into Louisiana's ecologically rich wetlands.

As you likely know on April 20th, an explosion of a rig operated by BP and owned by Transocean blew-out a well about a mile underwater.

The resulting oil slick imperils hundreds of species of fish, birds and other wildlife along the Gulf Coast.

Of course we fully understand the most pressing challenges are for the environment (click here to read more about that) but as a TV show largely focussed on finance, in this post we’re going to focus on the challenges the oil spill presents for investors.

And there are at least three big ones.

1) Exploration

Speaking at an energy conference, the heads of both Devon and Chesapeake said the massive spill will significantly set back industry efforts to increase offshore drilling.

Meanwhile David Axelrod, a top adviser to President Barack Obama, echoed that sentiment when he said, "no additional drilling will be authorized until we find out what has happened here."

(Obama had recently lifted a drilling moratorium for many offshore areas, including the Atlantic Ocean and Gulf.)

2) Reputation

Although cleaning up the spill is expected to cost BP several hundred million, the long-term damage to BP’s reputation could cost the company much more.

For Tony Hayward, who has led BP for the last three years, the accident threatens to overshadow all of the efforts he has made to burnish the tattered reputation of the company after a refinery explosion in Texas in 2005 and a pipeline leak in Alaska in 2006.

As Mr. Hayward said to fellow executives in his London office recently, “What the hell did we do to deserve this?”

3) Market Impact

On top of all that, if these developments trigger an sharp decline in energy sector broadly – the weakness could drag down the entire market.

How should you be positioned now?

I think oil services stocks were oversold, says Karen Finerman, but I’d only play it with calls so you can limit your downside. In the long-run I expect we'll hear the liability belongs to BP .

The market can sell these kinds of events a lot longer than you think it should, cautions Guy Adami. Trade carefully.

In the space, I’d look at Diamond Offshore, says Tim Seymour. They're heavily involved in drilling off the coast of Brazil.

I also think there may be some buying opportunities once the smoke clears, says Steve Grasso on the Halftime Report. I’d watch Massey Energy.

Looking at another angle, the catastrophe will likely make fishmeal less available, adds Dennis Gartman. That will reduce the amount of feedstock for livestock. I’d expect that to send soy beans higher.


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Trader disclosure: On Apr 30, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Najarian Owns (AKAM) Call Spread; Najarian Owns (PG) Calls; Najarian Owns (JEF) Calls; Najarian Owns (KGC) Calls; Najarian Owns (C) Calls; Najarian Owns (CBS) Calls; Najarian Owns (NRG) Call Spread; Najarian Owns (TEVA); Najarian Owns (YHOO) Call Spread; Grasso Owns (NDAQ), (DYN), (LPX), (ASTM), (ABK), (BAC), (BGP), (C), (CVGI), (JPM), (NEM), (PRST), (PFE), (BA), (T), (CSCO), (X); Stutland Is Short (SPY) Through Options; Stutland Owns (XLF) Call Spread, Is Short Strangles, Is Long Downside Put; Stutland Owns (CVX); Stutland Owns (WFC) Corporate Bond; Stutland Is Short (BAC) Straddle, Owns (BAC); Stutland Is Short (GLD) Put Spread, Is Long 1x2 Call Spread; Stutland Owns (SLV) Calls, Is Short (SLV) Puts; Stutland Owns (TXN), Is Short (TXN) Call; Najarian Owns (PG) Calls; Seymour Owns (EEM), (AAPL), (BAC), (GOOG) (MSFT); Finerman's Firm Is Short (IWM), (IYR), (MDY); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL), (AKAM); Finerman's Firm Owns (BAC), (BAC) Leap; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (CVS); Finerman Owns (GOOG); Finerman's Firm And Finerman Own (JPM); Finerman's Firm Owns (KFT); Finerman Owns (WFC) Preferred; Finerman's Firm Owns (BBY); Finemran's Firm Owns (BP), (BP) Calls; Finerman's Firm Owns (RIG), (RIG) Calls; Finerman Owns (BBY); Finerman Owns (RIG), (RIG) Calls

For Dennis Gartman
Funds Managed By Dennis Gartman Are Short Euro
Funds Managed By Dennis Gartman Are Short Yen
Funds Managed By Dennis Gartman Are Long Gold
Funds Managed By Dennis Gartman Own (DRI)
Funds Managed By Dennis Gartman Are Long Canadian Dollar, Australian Dollar
Funds Managed By Dennis Gartman Are Short Euro, Sterling, Yen
Funds Managed By Dennis Gartman Own (GLD)

For Steve Grasso
Stuart Frankel And Its Partners Own (AMR)
Stuart Frankel And Its Partners Own (BAX)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (CUBA)
Stuart Frankel And Its Partners Own (DYN)
Stuart Frankel And Its Partners Own (GERN)
Stuart Frankel And Its Partners Own (HSPO)
Stuart Frankel And Its Partners Own (MERC)
Stuart Frankel And Its Partners Own (NWS.A)
Stuart Frankel And Its Partners Own (NYX)
Stuart Frankel And Its Partners Own (PALM)
Stuart Frankel And Its Partners Own (PDE)
Stuart Frankel And Its Partners Own (PFE)
Stuart Frankel And Its Partners Own (PRST)
Stuart Frankel And Its Partners Own (RDC)
Stuart Frankel And Its Partners Own (TLM)
Stuart Frankel And Its Partners Own (XRX)
Stuart Frankel And Its Partners Own (SDS)
Stuart Frankel And Its Partners Are Short (QQQQ)
Stuart Frankel And Its Partners Are Short (CL)
Stuart Frankel And Its Partners Are Short (AAPL)

For Brian Stutland
Stutland Equities Is A Market Maker In VIX
Stutland Equities Is A Market Maker In SPX Options And Futures
Stutland Equities Has A VIX Long Position, Short Volatility
Stutland Equities Has A SPX Short Position, Long Volatility

For Matthew Albrecht
Standard & Poor's Other Affiliates May Provide Services To (GS)

For Patty Edwards:
Edwards Owns (ERF) For Clients
Edwards Owns (MCD) For Clients
Edwards Owns (HD) For Clients


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SPDR NRG SEL
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MV OIL SVCS
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