An Energy Bull Stays Bullish
YOU MIGHT THINK THAT ENERGY STOCKS HAVE HIT their highs, but Chuck Clough considers that a delusion. The chief of Boston-based Clough Capital Partners says that while crude prices have backed off, natural-gas supplies are getting tighter, as North American gas fields are being depleted. "There will be a second level of tightening," Clough predicts confidently. "This is still in the early stages of being recognized by the capital markets. I hate to use this metaphor, but we're in the third inning."
One big investment area for the funds is North American natural gas, where years of underinvestment have finally led to rising prices. North American gas fields are mature, and production was hit by Hurricane Katrina.
At the same time, the strong economic growth of China and Southeast Asia has driven up demand for oil, with which natural gas competes. This winter alone, overall demand for gas in the U.S. is expected to rise 2.3%, with residential demand jumping 7.4%. North American gas producers must acquire new reserves, or drill for them.
Says Clough: "The purpose of high commodity prices is to entice new investment. This time, they're high enough that companies are finally getting conviction." Expect even more capital spending. Companies must go deeper to find gas: "If you're going to bring in new capacity, it will be in 70 to 100 feet of water."
Table: Clough Global Equity Top 10 HoldingsOffshore deep-water rigs cost $300 million to $500 million. Already, producers are entering into premium-rig contracts that extend to 2008. Quite a change from prior years, when rigs were booked per job. Meanwhile, the contracts "are at prices nobody would have dreamed of a year ago." Thus, the value of gas reserves and rigs is rising. And consolidation supports higher valuations.
It went crazy yesterday, just a few down and some up by up to $5! Today looks like a little profit taking is going on??? Only 49 are in the GREEN!
Hope you had good xmas days and I wish you a good 2006! Did you ever buy into EPEX @ $14 or so???
Enjoy our "heat wave"!
Will get back to you about having lunch soon!
Rowdy - How did your sheet of 98 do today? Should have been pretty good. I believe that energy and gold will be among the leaders this year again. Have a good year and we still have to get together for lunch someday. Jed
Thanks for the informative post on NG
suppliy levels, I think people will be
pleasantly surprised this next quarter!
This is the one I have been waiting for
quite some time! GOOD LUCK TO ALL!! and
MERRY CHRISTMAS!! (and HAPPY NEW YEAR!!)
Yesterday's WSJ had a mid-section feature story on New England states running emergency drills in case there are rolling blackouts - caused by a shortage of natural gas. Prolonged cold will kick in demand for peak electric, and that means a surge in natural gas demand for one of the most densely populated areas of the US. New England is taking the prospect of people freezing in their homes very seriously. Furnaces don't heat without electric to move the air. That's one place the shutdown in the gulf will quickly create a squeeze. NE estimates that people can last about 2 hours in their houses in a zero cold snap without electric, and then they go to icebox temps. And winter just started.
Where the Action Is in Energy
S&P''s Tina Vital scopes out oil and natural gas plays in the climate of high fuel prices. In her view, good buying prospects abound
"A good buying opportunity for many investors." That's what Standard&Poor's analyst Tina Vital sees in many oil and natural gas stocks at the moment. After the spike produced by hurricanes Katrina and Rita, oil prices have moderated, at least temporarily, and energy stock prices fell by as much as 15% to 20%.
Vital views that as a temporary phenomenon, but S&P suggests investors take advantage of the dip -- even though the stocks have already regained a bit of ground. With colder winter weather starting to hit, S&P expects oil prices to remain in the area of $60 per barrel through the season. Thanks to new supplies coming on, Vital says, that figure could drop to $52 by yearend 2006. On the natural gas side, S&P predicts prices will stay around $13 per million Btu through winter.
(Tina Vital is a Standard&Poor's Equity Research analyst.
What's your outlook for oil prices in the coming year? S&P expects that oil prices will not see much more decline, with the colder winter weather upon us, and we expect WTI [West Texas intermediate] oil prices to average near $60 per barrel through the winter. Right now oil prices are around that level, but next year we do expect some new oil supplies to come on stream in Africa, Latin America, and Russia, which should ease prices a bit. We expect oil prices then to drop to $52 in December, 2006, and to $45 by December, 2007.
For natural gas, prices have moved up on cold weather and worries about loss of supply due to Katrina and Rita. Right now prices are over $13 per million Btu, and Standard&Poor's projects that natural gas will remain above $12 through the winter season, then decline to $9 by December '06. So these are very strong prices for oil and gas, and we expect the earnings of energy companies to be quite strong in 2006 on these high prices, combined with an increase in demand.
With the sell-off of many of these energy stocks, we saw a dip in oil and gas prices before the winter season, which we believe is a good buying opportunity for many investors.
I think they will get warmer weather quick, the "heat wave" is comming their way! Yesterday it was in the 30s in MO, WY, SD and ND, today its us (MN & WI), we are sitting at almost 40F and in the twin cities it was aleady over 40F already by 10:00! This is all moving east slowly and we going to get rain on saturday and sunday, that could get sporty with driving over nite! Anyway we take it, the roads are all melted and so is my drive way, just blew the 10 inches of snow of the deck and its thawing like crazy, this will freeze over nite and the ones that didnt take care of their roofs, spells ICE damming over nite!
33 out onf my list of 98 are in the RED right now, everything is else is up!