Blondie, Just to show you I am not a "blind" bull. ;o} Below are some bona fide oil patch "bear" articles. Slider will be pleased. :o{}
Your question about the shoulder season is well taken. The only problem I have with it (and it's implications) is this:
It seems that refiners are WAY behind in the production of HO. I think that refiners will have to stage a huge set of runs to get us any where near a normal build, will they not? The last runs that brought gasoline stocks back to the middle of the five year range resulted in a tremendous 11 million (or there abouts) draw in crude. So, is it not reasonable to assume the following:
Even with additional Saudi crude the normal Oct. - Nov. build in crude may be very modest if, in fact, it occurs at all. Now, if 6% of refining capacity goes down in Sept. then the additional crude may in fact result in a normal to large build in crude stocks, but HO, gasoline, and distillates stocks (the stuff people actually use) will plunge to perilous levels, negating in the market place the crude build.
OK Send in the Bears:
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thestreet.com
oilandgasinvestor.com
Howard Weil Head Eyes Lower Prices, But Better Equity Markets
For any producer, $30 oil and $4.50 gas is music to the ears. But for a lot of investors, it has meant caution.
“Many institutional investors believe that the price of both commodities has been too high of late,” says William H. Walker, president of Howard Weil Labouisse Friedrichs Inc. in New Orleans. “What they’d rather see is commodity prices come off a bit and use that as an opportunity to buy energy stocks.”
Walker believes that’s exactly what the buy side will see over the next six months, as West Texas Intermediate crude prices retreat to the mid-$20s and natural gas prices ease below $4.
“If Saudi Arabia can’t jawbone oil prices down, it’ll likely increase production, plus the recent high WTI prices we’ve seen will definitely have a dampening effect on demand. This, of course, is a formula for lower market prices,” he says. “On the gas side, $4-plus prices are going to create an awful lot of drilling in North America, and the resulting higher supply will similarly push gas prices down.”
As oil and gas prices pull back, the equity markets should begin to come back this fall. Explains Walker, “It’ll be easier to sell energy stocks with oil at $25 and gas at $3.50 than selling the same stocks when oil is $30 and gas is $4.50. There’ll no longer be the issue in investors’ minds about the sustainability of high commodity prices. And in the case of gas, the market by that time will have a better idea about demand, storage levels, weather and pricing going into the 2000-2001 winter heating season.”
His optimism about the industry’s access to equity this fall extends to the IPO market. He notes, for instance, that Energy Partners Ltd., a private New Orleans operator focused on Gulf of Mexico drilling, filed in early August to raise a proposed $125 million through such an offering. Howard Weil will be a co-manager on the transaction.
As investor interest in the upstream warms up, Walker hopes the buy side will exercise discipline as it decides which producer stocks to favor. “Over the last 20 years, energy as a percent of the S&P has dropped from 26% to 6%, which means a lot of capital was wasted in the energy business, particularly the E&P sector.”
Repeating a familiar mantra, he says that an E&P company with established management, a good acreage position and a healthy balance sheet is an ideal investment candidate. “With plenty of acreage, an operator has lots of drilling choices when prices are high, and with a solid balance sheet, he can buy other companies cheaply when prices are low. Indeed, there are still too many poorly financed energy companies chasing too few good prospects worldwide.”
How long might energy stocks stay in market favor beyond this fall? Says Walker, “While many value investors have already bailed out of the energy sector, I’m finding from my travels on the road that there are still many other investors that think we’re only in the second or third inning of a nine-inning game.”
--Brian A. Toal, Senior Financial Editor, Oil and Gas Investor |
