Another energy boom is on the way

Trading energy and energy stocks this week have been a dangerous experience, as oil markets sloughed off more than $3 a barrel on little more than a whim.  DOE reports showed a certain stockpile increase, but those reports have been rather irrelevant for years, so pointing to this particular report as a reason for the quick drop would seem a major overstatement I won’t be foolish enough to make.

Much more believable would be the one-sided nature of the trade for the past week and a half, with traders looking for risk assets to again take the lead in a stock market that has continued to float upon a layer of liquidity and make new highs almost daily.  

But risk assets have done anything but cooperate – copper is bad, gold is bad as are the equally commodity based stocks like miners and materials.  With traders piling into oil as some sort of hedge for Kim Jung Un’s latest temper tantrum, it’s not hard to imagine the world being caught long and paying for it – as markets are wont to do -- punishing traders who even for a moment thought they’ve got it all figured out.

What I can say to readers of Oilprice Premium is that the overview of markets I’ve been providing has been a useful one, if you’ve read closely:  I warned very clearly of the collapsing spreads between West Texas Intermediate crude and the European Brent Crude benchmarks and told of the likely contraction of refiner margins that could result; refiners in the midcontinent this week responded by sloughing off almost 10% of their value.  

No doubt about it, it’s tough out there in the energy patch.

One place I am slowly looking for value is in natural gas – long before anyone else is looking at it.  Anyone who has followed the nat gas market the last 3 years knows how deep a surplus the market has labored against.  That has forced prices at least briefly under $2/mcf in 2012 and also caused a panicky turnaround in countless energy companies to move from dry gas to more ‘liquid’ plays, whether those are NGL’s or crudes.

But trust me when I tell you, I’ve been trading oil for 25 plus years and whenever the pendulum swings wildly in one direction, it’s sure to swing just as wildly in the other, often decapitating the traders who think there’s a “new normal”.  Here’s a tip:  There’s NEVER a new normal in energy.

Rig counts in natural gas are down to levels not seen since the late 90’s and stockpiles are finally again below the 5-year average.  And with oil companies by the dozens out of the business of producing natural gas and others investing billions making a multi-decade investment in LNG looking for a low natural gas price forever, I’m getting convinced that another energy boom is on the way.

Oil companies, like markets, are only right for the moment – and over the long haul, ALWAYS wrong.

There’s no rush on this – once nat gas is truly on a trajectory to SHORTAGE, it will be even more obvious than the recent breach of $4/mcf this last week.  And I will drill down on some great opportunities I think will exist in upcoming columns.

For now just keep it on your radar:  Nat gas.  The bottom has been put in.