30
Mar

Wrap – Week End 03/28/08

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1) An Energy Sector Divided. Performance is rarely so split, especially in a week where both oil and natural gas mounted resurgences.

  • The XOI underperformed due to the high weighting of refiners in its midst and it is those refiners that I continue to avoid.
  • We continue to be somewhat over-weighted in the gassier E&P names although I did pull in more horns on the oil names last week as I let go of a position in (APA). We knew last week that imports would likely be low (bad weather) and this likely yield a more bullish crude storage (yep) and this week the inverse is likely. More on that in Tuesday's post.
  • Service outperformed after certain E&P stocks offered plans to accelerate drilling activity. Last Wednesday's post covered this and many of the land drillers subsequent caught analyst upgrades.

2) Natural Gas Continues To Outperform Oil On A Year To Date Basis By 3 to 1 ... Once natural gas broke out of its $6 to $8 per MMBTU band earlier this year it garnered a lot of new fans. Many of them have recently "discovered" the 6 to 1 ratio for BTU conversion between oil (a global fuel) and natural gas (a predominantly local fuel). They say if oil is $100 then gas should be $16.66 ($100 oil divided by 6) and you should buy all you can. What a deal! They then site the swoon in LNG imports to the states which this first quarter of the year have been low by 1 to 2 Bcfgpd from last year. Imports from Canada have been more flattish. But it's the weather that has taken storage from surplus to only slightly high to the 5 year average. As we enter the first shoulder season of 2008, higher production will allow for a rapid rebuild of storage. In fact, the EIA posted new numbers for U.S. production on Friday and volumes were up a little over 4 Bcfgpd in January 2008 relative to January 2007.  Here's a couple of charts to tide you over for the weekend and look for more detail on Monday.

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Also note that the Gulf of Mexico number being flat YoY looks highly suspect and will almost certainly be revised higher in next month's report. More on that tomorrow.

 

3) ... But Coal Has Been King So Far, Defying Gravity and Analyst's Expectations. I wrote about coal most recently in March 20th's post and will be doing a little more work there in coming weeks as the analyst's who followed the group launched a series of downgrades based on their belief that the underlying commodity had peaked in January and would have little upside in the remained of 2008. Given the increasing global demand for coal for generation and for metallurgy I think the analysts may have overstated both downside case for coal prices and the disregarded the fact that like the E&P stocks with oil and natural gas, the coal stocks are not fully discounting coal prices. Still, brokers need to make trades and analysts like to downgrade and upgrade whole groups of stocks to this end. Given the wide under-performance YTD of KOL (the coal stock ETF) (yes, I know its not a perfect coal holder but it gives a good indication and take a look at (BTU)'s lackluster performance as well) relative to the pricing of that which those companies sell (coal) I think it will not be long, especially with summer around the corner and forecasts of another strong generation demand growth year   

Holdings Watch: Here are this past week's closed trades, subscribers can go to the Holdings Page and Holdings Wiki page for recent additions.

  • (HK) - Half out the April $20 calls, up 94%
  • (HAL) - Half out the April $37.50 calls, up 110%
  • (HK) - Half out the April $17.50 calls, up 244%
  • (APA) - Out April $120 calls, up 26%

The "half outs on (HK) allowed us to play with "house" money while we wait for more news stemming from comments made during the March 12th analyst meeting. We also had a good ride there as the sleepy crop of analysts failed to recognize that a new shale play, the Haynesville in Louisiana might actually be important to HK's future ... it certainly was deemed important to Chesapeake's or at least that's how I interpret CEO Aubrey McClendon's "most import press release in the 19 year history of our company" statement.  

ZContest For HK Acquisition: Subscribers occasionally get a free ride. Pick the acquiring company of Petrohawlk (HK) and get a free month of Zman. Stipulations are one "guess" per customer, (HK) must be acquired within the calendar year of 2008 (just trying to limit my liability here), you must of course already be a subscriber, and your pick needs to be sent along in the comments section of the site (no emails please as we try to live in the land of transparency around here). Here's the list so far:

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