Where are the Energy Bears? | Self Directed Investor

Money is flying into the junior Canadian oil sector. Every morning I wake up and the first thing I do is check my blackberry to see if any financings in the oil and gas sector were announced in which I might want to participate.

Yesterday three companies I follow – Novus Energy (NVS-TSXv), Wavefront Technology (WEE-TSXv) and Southern Pacific (STP-TSXv) – all announced $20 million financings. Novus upped it to $25 million within hours.

All the heavy oil junior producers I follow in Canada either broke out or traded within 3% of their 52 week high (except for Southern Pacific).

And all this happened on a day when oil was DOWN over $2 a barrel, the VIX volatility index hit 2 month highs and the Greek debt contagion threatened to spread across Europe. Bulls in Pamplona have nothing on this market.

But nobody that I can see, read or hear, is calling for lower oil prices. Where did all the oil bears go? I used to read consistently from gurus like Stephen Schork in the US and Olivier Jakob at Petromatrix that oil is overpriced – and that was $15 a barrel ago.

On April 1, in an interview with Business Week, Schork said he now expected oil to hit $110 a barrel before demand destruction set in.

The bears are hibernating. Everyone in the oilpatch is partying – the investment bankers, mutual funds, analysts and retail investors. Even the AMEX Natural Gas Index in the US hit a 52 week high last week – as natural gas prices across North America set 2010 lows. (More on that in my next story.) The market is already pricing in a lot higher gas prices in the second half of this year.

I find all this ebullience unsettling. I'm not bearish….but I am aware of how bullish everybody else is.

Because of that I actually sold part of one of my non-portfolio oil stock positions today, and it quickly went moved to make its 3^rd highest close of the year afterwards.

There's no fear in the junior oilpatch. People have forgotten that markets often drop a lot faster than they rise – especially in the last 24 months.

Valuations are continuing to increase. I've been looking at the juniors on the US side of border in the Bakken – they're having great success – but I can't bring myself to pay what most of those stocks are trading at.

And unless there is a major hiccup in the Chindia story – Asian industrialization; the fastest growing middle class in history – it looks like valuations are going higher. Perhaps higher interest rates this summer will be the catalyst for the long-awaited pause or correction in the markets.

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