["Based on the fundamentals I would be short oil service stocks today if we hadn't had a break out to multi-cycle highs in the XNG and the XOI."]
Well do I remember the late spring and early summer of '01. I had huge positions in CHK and PTEN. The University of Houston savant, Prof Economides was talking $40 NG. There was no way I was going to bail. What happened??? About six weeks of 100+BCF storage builds in May/June. A cool summer, and the FERC put a price cap on electricity in the West. Never, ever underestimate the fear that a federal price capping move puts into the market, even if it only indirectly effected NG. Oh. We also started a recession.
What is different this time?? I see the economy continuing to slowly strengthen. The only bubble I see is real estate. NG storage is high, so NG prices might be nearing a bubble. Texas NG production is up slightly YOY and we do have a lot of LNG coming in. Crude may be near bubble given storage, but there is no doubt that we are in a new demand paradigm. Recently (CHK??) laid off some rigs - citing rates being too high - suggesting some sobriety. The federal government is confounded, having talked policy for four years, and done nothing. I see neither vast new supplies on fed lands nor foolish intervention any time soon. Diane Feinstein will whine and beg for price caps this summer when the hydro shortage blackouts hit, but "W" and Schwarzenegger won't allow it. We may be in for the soft landing in OSX. Hey!! This time its different. Seriously, I would wait and study the NG builds through the shoulder season before bailing. You know that Kali will be sucking lots of NG this summer with the weak hydro. Another cautionary note would be the post Ivan GOM production recovery. We could see large NG builds in late March, early April. I think it a little early to say that the fundamentals have turned against the OSX. I look at the chart and the fundamentals. I see three more months of increase or sidewards motion. Having said that, I am selling close in - $100 strike - covered calls on the OIH. |
