A ... point number 3 is what got me bullish in the first place and it's easy enuff to check at ino.com-- something I watch on a daily basis.
If a person were to get real bullish on the patch, I'd say this person should be buying (in alphabetical order) Case Resources (CAZ-TSX) Celtic Resources (CLT-TSX) and High Point Resources (HPR-TSXV). I figure the sector itself should get a nice pop since Peter Linder is going to be interviewed on RobTV tonight. Linder is to oil and gas what Embry is to gold and silver. Btw, if I had an extra $55K lying around doing sqwat I'd be buying Petro Canada (PCA-TSX)-- that would look real sweet along side Suncor (SU-TSX).
"3. “Contango” in the NYMEX futures price curve for natural gas has induced extraordinary storage refill rates as of late-- this is completely disregarded by the “storage bears.” The near term shape, and overall level, on the NYMEX futures curve is bullish in our opinion and a much more solid indicator of U.S. supply/demand fundamentals. A month ago U.S. natural gas prices were at $4.34 per Mcf the cheapest price seen in nearly 10 months. We maintain that this low price and the worry over depressed wellhead field supplies kicked off a buying spree late in the storage refill season. This buying spree, which in turn led to greater than expected weekly refills, we think was misinterpreted by the “storage bears” as natural gas “demand destruction” in the industrial sector. The “storage bears” see industrial demand having slumped by 4 Bcfd in the last month. We do not think this is the case. It is important to note in mid September, the January 2004 natural gas NYMEX gas future contract was at $5.50 per Mcf. The difference allowed gas marketers and financial trading/commodity players to buy physical mid-September gas, store it for a small fee, and sell it forward via the January futures contract locking in a $1.25 per Mcf price spread. This spread was two and half times the spread ($0.50 per Mcf) offered for most of the 2003 refill season (April through September). This profit inducement, plus the fact that unregulated financial /trading players now dominate the control of the nation’s storage fields (instead of being controlled by regulated, local gas distribution utilities which have no profit potential related to gas inventory management) have been completely omitted in the thinking of the “storage bears.”
Exhibit 1 illustrates the profit inducement from buying physical gas throughout the 2003 storage refill season and selling the January 2004 futures contract. Notice the profit spike available beginning in mid September. For most of the storage refill season only $0.50 per Mcf of profit potential was available but by mid September it shot up to $1.25 per Mcf. We think this goes a long ways to explaining the large than expected storage injections at the end of the 2003 refill season.
Investment Conclusion We are re-iterating our bullish stance on the E&P sector in light of what we would characterize as a sophomoric view on underground storage inventories put forth by the natural gas bears. This view looks at the weekly change in inventories (released Thursday’s at 10:30 EDT) adjusted by any weather related demand and says that the difference (usually an excess build in storage) relates solely to lost demand e.g., either fuel switching or reduced industrial gas demand. We take exception with this analysis as it does not take into account other important storage related determinants, principally the shape of the forward price curve of natural gas and the severely depressed state of North American wellhead or field supplies. We believe that investors would be well served at looking at these other factors that relate more to the fundamental wellhead supply picture rather than storage. We remind investors that storage, after all, is inventory which by its very definition is transitory in nature. We are maintaining our $4.75 per Mcf 2004 U.S. natural gas price forecast on which our stock ratings are premised. With E&P stocks off 15% from their mid-June high we would use any weakness created by the storage bears here at the end of the of the re-fill season to purchase E&P stocks. Such purchases may provide near-term outperformance and an attractive entry point into the long-term story for North American natural gas."
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