Al / Forecasts
My wife calls me bullheaded - so I assume I'm bullish on all fronts.
My view on dominant natural gas producers is this. We have a combination of two negative factors effecting shares of these companies. First, the whole sector is pulling shares in these companies downward. Second, natural gas prices have also been hammered because of the above normal temperatures we have been experiencing. As a result, we not only have an oil glut, but have been building a natural gas glut also. However, demand is really beginning to set in and we should be able to begin depleting storage supplies. I believe the average price of natural gas which companies are using for their 1999 budgets will be obtainable.
The real question is just how deep is this correction going before we begin to see a slow recovery. We've been in a downward trend for 15 months.
I'm not one for timing the market and I don't think anyone should attempt to do so. However, I think shares in these companies have adjusted pretty close to the current price of oil. This latest decline has come in the face of rising shares over the pasrt few weeks as the price of oil continued downward. So, I'm not surprised shares are now being clobbered.
I have mentioned several times that I felt this was going to happen and suggested that all wait before reinvesting into the O&G companies. Further, I also suggested that sometime after Christmas would be a good point in time to begin accumulating shares in selective companies. I still hold that opinion.
If one is a trader, meaning in and out for quick profits, the suggestion is meaningless. However, if one is an investor looking at longer term investment objectives -- I believe the suggestion is placed on a strong foundation of merit.
Natural Gas - I believe we have seen the lows in NG spot prices and companies leveraged towards NG will reverse their share price trend shortly. Also, these companies have forward sold at prices far exceeding the numbers they are using in their budgets.
Crude Oil - This is really a no-brainer in my opinion, I'm bullish. That's a great comment isn't it -- with prices at 12-year lows and when adjusted for inflation, are at 25-year lows. On a year-to-year basis, oil is down 39%. Just how low - is low. I can see a potential further weakening in prices, but understand this -- I place a +/- value on future pricing as 75%/15%. Otherwise, the downside risk is 15% and an upside reward is 75%. If you are a long term investor, even with oil prices falling to my low projection, you still ride it out for the longer term. Believe me, the price of oil will correct itself in time to $18.00. I choose this number based upon historical averages over the past decade. In a couple of years, one will look back and wonder why they didn't buy more shares in oil producers when the price of oil was so low and think to themselves - wow, it really was a no-brainer.
However, I still caution that todays investor must be very selective in the manner I previously described. I would place emphasis on the larger companies with a minor percentage of investment into smaller companies.
To conclude, I like the investment situation with the oil producers. One can begin to accumulate shares in these companies anytime after Christmas.
Keep in mind, just one person's opinion -- this time it was mine.
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