Is There More Value In Natural Gas?
By Dan Dicker - Aug 05, 2016, 7:06 PM CDT
I’m looking to make only some small tweaks to our investments in this lazy month of August. It is a time I’ve tried to avoid trading, when volumes are weak and market moves, both up and down, are given more concern than they need to have. Lots of print has been devoted to the oil market, looking weak from a gasoline glut that I believe will clear rather quickly. Some increases in supply from Canada and Libya seem also to have the analysts chewing their fingernails, but these are minor adjustments into the global supply/demand balance. I like to think of weekly stockpile numbers as ‘small ball’ inputs – we are playing ‘long ball’ where global rebalancing of oil markets is destined to drive oil prices back towards triple digits, and our stocks with it.
While we wait however, let’s look at a few of the more recent plays I’ve given subscribers: Southwestern Energy (SWN), Cheniere Energy (LNG) , Silver Run Acquisitions (SRAQU) and Anadarko Petroleum (APC). All have done well since their initial recommendations, so should we hang in with them all or is it time to take the money and run?
Southwestern Energy was always a speculative play based upon a weak oil market while looking at a natural gas market that likely might see some storage drops in the middle of a heat wave. SWN was particularly under pressure and I thought ready to respond to an increase in degree days combined with a lower inflow into storage.
We've…
I’m looking to make only some small tweaks to our investments in this lazy month of August. It is a time I’ve tried to avoid trading, when volumes are weak and market moves, both up and down, are given more concern than they need to have. Lots of print has been devoted to the oil market, looking weak from a gasoline glut that I believe will clear rather quickly. Some increases in supply from Canada and Libya seem also to have the analysts chewing their fingernails, but these are minor adjustments into the global supply/demand balance. I like to think of weekly stockpile numbers as ‘small ball’ inputs – we are playing ‘long ball’ where global rebalancing of oil markets is destined to drive oil prices back towards triple digits, and our stocks with it.
While we wait however, let’s look at a few of the more recent plays I’ve given subscribers: Southwestern Energy (SWN), Cheniere Energy (LNG) , Silver Run Acquisitions (SRAQU) and Anadarko Petroleum (APC). All have done well since their initial recommendations, so should we hang in with them all or is it time to take the money and run?
Southwestern Energy was always a speculative play based upon a weak oil market while looking at a natural gas market that likely might see some storage drops in the middle of a heat wave. SWN was particularly under pressure and I thought ready to respond to an increase in degree days combined with a lower inflow into storage.
We've gotten that. Last week the 17-Bcf injection into storage was well below the 22 Bcf that was expected. This week, the 6 Bcf drop in storage was almost unprecedented in early August. Nat gas is spiking above $2.85, and what I want to see is a pop above the key $3 level (and above $15.30 for SWN shares). Otherwise, the continuing glut in nat gas again will make itself known and will dampen both nat gas and SWN. If you wanted to take the money and run right now, I wouldn't blame you.
Cheniere is working out to be a super long-term investment. It's doing everything I hoped it would when I wrote about it in June, including technically breaking out strongly over $40. I'm sticking with this one for now.
Silver Run finally has made its big move, acquiring a majority stake in the private oil company Centennial. I've read the release from Silver Run and I'll say I'm not totally sure what it says, with Silver Run ultimately becoming the "development" arm for Centennial. What I do know is that Mark Papa will be heading an oil company again, Silver Run walks into some really prime acreage in the super-hot Permian, does it with no debt, and has the support of private equity powerhouse Riverstone Holdings, which will allow Papa to develop those resources at his own pace. That's starting in the oil game way ahead of most. I think I have to wait for the Centennial initial public offering now -- and if it comes when oil is trading above $50, it'll pop big again.
Finally, Anadarko has come out from the shadow of almost every analyst out there, proving that as U.S. exploration-and-production companies go, it was woefully undervalued and underrated. As the oil market has declined in recent sessions, Anadarko has been steadfastly trading near $54, while others have sagged. This is a very good sign going forward, but I'm still uncomfortable with oil under this kind of ridiculous but real pressure from a passing gas glut. Still, if you wanted to trade this one and get out waiting for another opportunity, I can certainly bless that move (and likely will do myself).
Four winners. Where's the next one? It's almost surely in a refining stock, where the markets have overreacted to a product glut and oil rally. But for now, take a break from heavy trading moves and look only to move in small steps through August.