Natural Gas Trends Up

In the wake of the historic collapse of venerable Wall Street financial house Bear Stearns (BSC), we see the outlook for energy remaining supportive on balance for our buy recommendations. Six-year oil futures stay in an upward trend and are well above $80 a barrel to which our estimates of present value relate.

Six-year natural gas futures, in a newly positive trend, are half the oil equivalent. Chief Executive Jim Mulva of buy-recommended ConocoPhillips (COP) exclaimed at the company’s analyst meeting on March 12, “Everywhere in the world people need [natural] gas!” Independent natural gas and oil producers together with income stocks are nearly all in a positive stock price trend. Buy recommendations with positive stock price momentum and lower McDep Ratio include Cimarex Energy (XEC) and Devon Energy (DVN).

Refining margins at about $9 a barrel for the one-year crack are below the 40-week average. The lack of rising stock price trend on a 200-day basis for most of the integrated companies may also be a short-term cautionary sign contrasting with the positive sign of low McDep Ratios. Buy recommendations off the most relative to the 200-day average include euro giants Royal Dutch Shell (RDS) and BP plc (BP).

Originally published on March 18, 2008.