I put no faith in the fact that anything was resolved. The people are oppressed, get little to nothing in the way of services from their government, and wait in multi-hour-long lines to buy gasoline (when it is available at all) in a country that can rank among the top 10 oil producers on the globe. The country's labor Unions began a planned two day strike yesterday, but it shouldn't impact production as most of the facilities are automated.
I'm not adding new positions for now (except for the occasional trade), as I'll be out of pocket mid-month, but if I were...
E&P -- I look at any weakness in the E&P sector has a buying opportunity right now. Favorite name right now is Comstock Resources Inc. (NYSE:CRK) followed by Anadarko Petroleum Corp. (NYSE:APC), Newfield Exploration Co. (NYSE:NFX), Chesapeake Energy Corp. (NYSE:CHK), and Petroquest Energy Inc. (NYSE:PQ).
Refiners -- mixed sentiment here. See below.
Service -- love it. No worries unless natural gas cracks $7, and that's not real likely with hurricane season (I really hate writing that but it's true) right around the corner. Favorites now are Noble Corp. (NYSE:NE), Halliburton Co. (NYSE:HAL), Grant Prideco Inc. (GRP). See more on natural gas below.
Tankers -- I generally like them right now. Operationally they are very busy but the stocks have been taking a breather of late. Look for them to get off the bench shortly.
Refinery Analyst Watch: I read an interesting BMO report on the refining sector last night. In a nutshell they like the group and are raising estimates due to recent higher than anticipated gas cracks. Important takeaways:
- Imports have not kept up with the advancing crack spreads. Comment: past tense. They've been catching up a lot lately and even chasing the higher crack spreads in the gulf coast and mid-continent by abandoning NY for ports in Texas and Louisiana. That ship is righting itself.
- BMO increased estimates more for the mid-continent and gulf coast regions, where cracks have only recently outpaced (on a percentage of growth YTD basis) the coasts. Comment: Just what I've been saying about Tesoro Corp. (NYSE:TSO) having seen the best days of the year for it's mostly west coast priced valuation relative to Valero Energy Corp. (NYSE:VLO) which could have more room to run.
- Cracks have risen by 177% vs a 40% rise in the group. Comment: Wow, that looks sustainable.
Stocks like TSO are up a little more than that year to date.
The group, as defined by BMO [Alon USA Energy Inc. (NYSE:ALJ), Frontier Oil Corp. (NYSE:FTO), Holly Corp. (HOC), Sunoco Inc. (NYSE:SUN), Tesoro Corp. (TSO), Valero Energy Corp. (VLO), Western Refining Inc. (NYSE:WNR)] is trading at 8.6x their 2007 estimates, below the traditional 10x forward multiple. I could argue that the peak multiple occurs once the estimates start falling.
The refining analyst has never had the sexy job of the E&P analyst, since refining is a dull, boring, grind-it-out style business with no new discoveries of potential company-maker proportions. I like the BMO guys and I think they put out fairly accurate forecasts. That said, they too think these levels are unsustainable as their average 2008 EPS number falls > 30% from the "toppy" 2007 projections.
Natural gas broke through technical support in the low $7.80s last week and may be gunning for a test of $7.50. I don't see a serious break of $7.50 in the near future unless: 1) Canadian imports pick up to the extent that someone in the press takes notice, 2) the recent rising heat moderates considerably, and/or 3) Congress passes a bill outlawing storms in the Gulf.
CFTC Watch: The net position in natural gas futures and options on futures remained virtually unchanged as of last Friday's report and as such is still very short by historically measures.
Analyst Watch: Anadarko Petroleum Corp. (APC) upped to buy at B of A.
Holdings Watch: As I indicated above, I'll be looking for chances to liquidate positions in the next two weeks and not rolling into out-month contracts as is my normal patter about two weeks before expiry. Last Friday's activity:
PUTS: TSO Added a 1x positions of the June 120s at $4.30.