"One money manager who has been loading up on North American gas drillers is Robert Shearer, who oversees three Merrill Lynch funds: Merrill Lynch Global Resources A (MAGRX), Merrill Lynch Global Resources B (MBGRX) and Merrill Lynch Global Resources D (MDGRX). At the start of May, more than 75% of his portfolio was in energy stocks, with an emphasis on companies involved with North American natural gas. "The next supply shortfall will be in natural gas," he predicts in a recent report to investors. "Even though prices are up and drilling activity is very high, we are not seeing a strong supply response." Which means there will have to be even more drilling, and soon. "Despite a record warm winter, storage went back to normal seasonal levels. There should have been a surplus. If next winter is colder, there will likely be shortages," Shearer says.
Before then, another hot summer plagued with metropolitan brownouts could cause a run on natural gas. It is the fuel of choice in the newest, environmentally-friendly, gas-turbine power plants that have sprouted in the wake of utility deregulation. "Natural gas is going to supply in excess of 70% of new generation capability built in the last year," observes Brooks.
A heat wave -- or a hurricane that shuts down rigs in the Gulf of Mexico -- could cause gas prices to spike sharply this summer, Brooks adds. That could draw momentum investors, who have been in and out of the oil-services sector several times over the last 18 months, as faith in the stability of raw-material prices ebbs and flows. Investors in the sector certainly wouldn't complain if that happened and the stocks soared. But the core holders of oil-services stocks are a lot less flighty bunch, which should give patient investors some comfort in these nervous times. "These stocks are owned largely by value investors who have been in them for some time," says Brooks. There are fundamental reasons why they will be inclined to hold their shares.
Wicklund notes that the futures price for natural gas to be delivered this December recently hit $4 per thousand cubic feet, which would be a record. Says Brooks, "The underinvestment that went on in this industry for the previous couple of years, and the slow pace of the pickup in investment so far in 2000, is basically guaranteeing that we're going to have higher and firmer commodity prices for the next several years.""
moneycentral.msn.com
looks to be a warm beginning to the summer
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