Where are the Energy Bears?
Wed, Apr 28, 10:17 AM ET, by Keith Schaefer, Oil and Gas Investments Newsletter
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.
Short-term "special situation" profit opportunities of 78.7%…181.4%
…even 301.7% have already been cashed in.
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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 3rd 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.
But right now, the bulls are running and it's still winter for the bears.
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