InterOil has taken a bit of a hit, from a high of 35.8 (if one doesn’t consider that one VERY big order at 41.62) to just above $30.40 Thursday at the close. Should we worry?

Let’s come up with some reasons: 

1. The general market was very ugly, a sinking tide takes all boats lower. Some of it might very well be due to the general market conditions, but IOC is really much more dependent on news. So:
2. A correction after an overbought situation (although we ran an earlier story about this, that rogue trade messed the technical picture up quite a bit). The overbought situation would also have ensued without that trade. However, stocks on a fundamental reappraisal by the investment community can remain in overbought situation for quite some time, it’s by no means guaranteed that if, for instance, the RSI goes above 70, the rally has to end and some correction necessarily sets in.
3. Buyers fatigue as news is still not out. This is a probable reason. “Show us the meat before we buy any more” is what investors seem to think the last couple of days.
4. Merrill problems, it was mentioned here:

“Despite the strong oil prices, PNG sole oil refiner and Canadian company InterOil has suffered from a fall of more than 11% this week, with nearly 5% being sliced off in today’s trading. A lot of the damage done on the Toronto Stock Exchange flowed from a Goldman Sachs warning that Citigroup and Merrill Lynch could have further write downs, with the latter company having a one-third stake, along with InterOil, in the liquefied natural gas joint venture for PNG, Liquid Niugini Gas.” (PNGIndustryNews.net)

Our own thoughts:

• Merrill’s problems will not likely cause too much of a problem for Liquid Niugini’s (the joint venture between InterOil, Merrill Lynch, and Clarion Finanz) LNG project. Finance is likely to come from some Asian buyer wanting to secure long-term supplies of LNG.
• News (DST3, if good) and a roadshow which InterOil’s CEO Phil Mulacek will hold with Raymond James next week will drive the price shortly. The huge increase in buying volume (and lack of short covering, at least until the 10th of June) means BIG funds and investors are taking this seriously, but a world to win in that department still..
• bottom line, 30 seems to offer some support level and this might be the last chance before the train is leaving. However, there is still some residual risk the next DST could disappoint, as expectations are pretty high. Some hedging is not a bad idea..