These Oil Producing Canaries Can Sing

Examining the move stocks have made off of the early March lows which has evolved from being described as a “bungie bounce” from super extreme oversold levels to an environment less toxic and one that can might be conducive to allowing a few “green shoots” to grow, there is a constant search for the indicator that will prove most adept at providing guidance as to whether the shoots are continuing to grow or the toxic winds are, again, beginning to blow.

Early on in mankind’s love affair with fossil fuels coal miners would bring canaries into the mines with them so they would know the air was getting foul when their fowl stopped singing. In essence then, there is a two-fold process which starts with finding which is the right canary in a coal mine and then moves on to monitoring whether it is singing or not.

Canaries do not flock but they do “colonize” and if there is a colony to this recovery it would be one of commodities. All those things the world uses to build, bake and barter we coo-coo’s consume.

Since the conspicuous kind of consumption is currently uncommon it would appear necessary to keep an eye on another more “crude” kind.

OPEC ministers met in Vienna last week to discuss output levels and the Oil Minister for Saudi Arabia, Ali al-Maimi, told reporters that “customers are asking for greater volumes of oil to satisfy a rise in industrial demand. There is a lot of optimism in what I am saying because I see the recovery coming.”

General Abdalla Salem El-Badri was not as enthusiastic but did “predict that prices could hit $70 a barrel by the end of the year.” I always find it interesting when one of the people that can control supply predicts where prices might be heading.

CDS spreads in the energy names have been coming in for a little while now and a preponderance of the positions in the portfolio portend higher prices for the associated equities.

Oil exploration names such as NFX, NXY and TLM as well as some of the composites: CHK, DVN, HES, MUR, NBL just to name a few. In all there are about 80 names in energy related sectors in the CEC universe of these there is a net long exposure of 31.

J.P. Morgan used to say the way to make money was to put all your eggs in one basket and then watch that basket very closely. All the CEC’s eggs aren’t in the energy basket but let’s hope out of the ones that are there, there are at least a few canaries that can sing.

Comments

[shambels:]

Nice article, atriculate and informative. I'd be interested in your perspective on the relative under performance of Natural Gas (ung) to the oil names.

Jun 02 05:08 PM

[bassmaster17:]

Hess has a great balance sheet and strong prospects....its stock price...a joke, be greedy.

Jun 17 02:28 PM