Divergence between energy stocks & oil/nat gas...

[Chagi]

Anyone else been watching energy stocks over the past month or so, particularly some of the Canadian stocks?

Oil has been holding up surprisingly well (given declining US dollar), and natural gas has been performing fairly poorly (not much of a surprise given the fundamentals). The interesting thing is that the charts of many energy companies are looking pretty darn ugly. Are the energy stocks telling us something about future oil and natural gas pricing?

 

[Bear Plunger]

Possibly. Nobody knows. I see the deterioration too, especially in the Canadian ones your talking about.

 

[PlusMinus]

Quote from Chagi:

Anyone else been watching energy stocks over the past month or so, particularly some of the Canadian stocks?

Oil has been holding up surprisingly well (given declining US dollar), and natural gas has been performing fairly poorly (not much of a surprise given the fundamentals). The interesting thing is that the charts of many energy companies are looking pretty darn ugly. Are the energy stocks telling us something about future oil and natural gas pricing?

Ever consider that energy companies have hedge books that lock in prices? Some manage these books better than others, whom end up selling for less than future spot prices. Unless you do the due diligence on each of these stocks, there's no conclusion to be drawn against the future of the underlying from these stocks.

 

[qwert]

watch the caspian sea news. us and europe not getting its way lately. so if we cant have it, the price of natural gas will be made worthless.

 

[Chagi]

Quote from PlusMinus:

Ever consider that energy companies have hedge books that lock in prices? Some manage these books better than others, whom end up selling for less than future spot prices. Unless you do the due diligence on each of these stocks, there's no conclusion to be drawn against the future of the underlying from these stocks.

There is much more to the picture than just hedging, such as future production expectations (increasing/decreasing), gas/oil weighting, environmental perception (e.g. oilsands vs. Baaken), integrated vs. non-integrated company, etc.

I would again argue that much of the oil/gas industry is not looking very "sex" right now, and I personally think that this has something to do with future expectations for commodity prices. I should also mention that shareholders often tend to prefer non-hedged producers vs. hedged producers (e.g. Barrick's recent elimination of hedging), aside from hedging to deliver some certainty regarding in relation to capital expenditures.

The final interesting point is that we are seeing condolidation (likely more to come), substantial layoffs in the industry, and some serious challenges in the natural gas space. Why would a company with fantastic expectations for the future layoff employees today, aside from making changes to their cost structure (e.g. transitioning from boom to non-boom times)?

 

[piezoe]

Commodities that trade in dollars will go up in price as the dollar declines in value. On top of this factor is supply and demand and that can be affected by speculation. It is not at all surprising that crude prices are holding up in spite of a recession considering the dollar weakness.