From Peter Linder, Research Capital:
• Despite comments from us in recent weeks such as "Just back up the truck and load up (and make sure it’s a big truck)", and "We believe now is an ideal time to be aggressively buying quality Canadian oil & gas producers", and “We are now convinced more than ever of a steady recovery in North American natural gas prices starting this spring (or sooner), with a year-end 2002 price of over US$4.50/Mcf", we sincerely apologize if we weren’t clear enough regarding our position. We hope to make amends today. • We believe more than ever that investors should still be aggressively buying oil & gas stocks. This is supported by the fact that the TSE oil & gas producers’ index is hitting record highs, seemingly unabated, almost everyday. Frankly, we have never seen the sector be such a compelling buy as it is today. Here are just a few reasons to support this:
1. Regarding natural gas prices, most analysts/investors remain bearish for the rest of this year. Their only focus appears to be the current record high North American gas storage levels and the fact that the levels will remain high through much of this spring/summer. All we can say is "Get over it!" With falling gas production and the surprising, relatively strong recovery in gas demand, the U.S. year-over-year storage overhang should disappear by this July or sooner. The U.S. economic recovery is much strong than anticipated. U.S. GDP in 1Q02 should now jump by 5%-6%, fueled by higher industrial production. And the rest of the year looks to be just as strong. This clearly leads to much higher energy demand, specifically natural gas demand. Also, significant fuel switching from oil to gas (about 2 Bcf/d so far) should be expected given their relative prices. We project overall U.S. gas demand to rise by at least 5 Bcf/d in 2H02 over 2H01 (total market about 70 Bcf/d).
2. Supporting our notion of recovering demand and falling supply is the fact that U.S. weekly storage withdrawals have been far greater than what would be expected given the weather situation. In recent months, withdrawals have been over 3 Bcf/d above what the weather should dictate.
3. On the gas production side, it’s just a matter of time before we see a sizable reduction (about 2 Bcf/d) in North American gas production as the U.S. gas rig count is now down to 610 compared to about 950 a year ago. The fall-off in the total Canadian rig numbers is similar: 420 rigs drilling today versus 569 a year ago.
4. And then there is the oil price story, which can only be bolstered from last week’s OPEC/non-OPEC (excluding Russia so far) agreement to maintain very low production quotas through 2Q02, the above noted U.S. economic recovery, and the potential
U. S./Iraq conflict. • As we stated last week, we expect oil and gas prices to rise through this summer from their already very healthy levels. We are calling for average 2Q02, 3Q02 and 4Q02 NYMEX gas prices of US$3.50/Mcf, US$4.00/Mcf, and US$4.50/Mcf, respectively. We have absolutely no idea where oil prices will be for these same quarters, but our educated guess is that they will be above US$25.00/Bbl for all three quarters. • Under the scenario outlined above we believe even our dear old grandmothers may consider being 100% invested in Canadian oil & gas stocks. Our favorite stocks today are almost every one. Just BUY BUY! |
