An interesting piece on the love of oil stocks and the opposite for companies that have explore and produce natural gas. Click on the picture to go to the article:
Although I find this an interesting analysis, it just doesn’t factor in the reality that stocks have only an indirect relationship to the underlying commodity. The oil/gas (boe) ratio even less. Stock prices are supply and demand driven – for the stocks. With oil and $100 investor psychology (typical in bubbles) embeds the expectation of continued oil pricing at or above this level. For natural gas, it’s the same. The difference is there’s been much buying interest in oil stocks based on irrational expectations (analysis becomes redundant) and none in the gas oriented ones. Gas plays are indeed cheap – simply based on the also irrational expectation that natural gas prices will decline forever, or at best stay put. The bet (institutions are smart and early, swapping into gas stocks gradually) on gas is a good one – worst case is “in” the price, and any good news (mighty cold weather) that pops up will rocket the stocks higher. In a nutshell, when I see a chart like the one below, I find it hard to ‘expect’ the trend to just keep going off (the bottom) of the chart and also expect to make money betting on it. There’s no fundamental or statistical evidence to base that expectation on (see previous postings on price of oil).
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