شتاء صعب للقطاع النفطي

شتاء صعب للقطاع النفطي

ايلاف من بيروت: مر الشتاء بسهولة على المناطق الاكثر برودة في العالم مما انعكس سلبا على القطاع النفطي، اضافة الى العوامل السياسية والامنية المتعددة، وفي التالي مقالة رأي لاميركي Jim Jubak حول القطاع النفطي:

Hard winter for the oil sector

Jubak's Journal

We're in a season when oil and oil stocks often slump. But it looks like this year's dip will be deeper than usual and last a lot longer. Here's what investors should know.

By Jim Jubak

If it's February, the price of crude oil must be tanking -- and taking down oil stocks with it. Over the last 26 years, according to SeasonalCharts.com, on average crude oil prices have peaked in late January and plunged to a low at the end of February or the beginning of March. (There's another seasonal peak in October and another seasonal low in December.)

So it really shouldn't come as a surprise to investors that the AMEX Oil Index ($XOI.X) peaked on Jan. 31 and has been tumbling ever since. There's certainly no reason to panic and abandon this sector of the stock market. On average, a seasonal drop like this is followed by a strong seasonal rally that lasts into May.

But while the general seasonal pattern is familiar, I think this drop will be deeper than usual and the rally will arrive later than expected.See the news
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Stocks of oil producers, oil drillers and oil-service companies will bounce back. The energy rally isn't over by a long stretch. If you've held onto your energy stocks through the decline to date -- already 11.5% on Feb. 15 from the Jan. 31 high -- I think you should continue to hold. If you've been looking to buy on the dip, I think it's time to start building positions. But only if you have the patience to wait out a drop that could be over in two to three weeks or that might stretch well into the second quarter of 2006.

Soaring winter demand
Why is the long-established seasonal trend in oil and oil stock prices different this time? Weather and inflation.

Let's start with a look at why crude oil prices are seasonal to begin with.
Typically, the world draws down its inventory of crude oil -- and crude-oil products such as heating oil, propane and kerosene -- in the winter. That's when demand for oil soars in the more heavily industrialized Northern Hemisphere as falling temperatures make furnaces burn longer and hotter.

Oil and oil product suppliers attempt to build inventories in order to handle peak seasonal demand. But that's not always easy, since oil demand fluctuates with the season but oil supply doesn't.

At the beginning of this heating season, nobody knows how cold the winter will be. That uncertainty drives up the price of physical crude oil -- customers are willing to pay more to lock in supplies -- and of oil futures that promise future delivery at a set price.

As the peak heating season draws near an end, however, the premium customers are willing to pay for a guaranteed supply diminishes along with their fears of running out of fuel in the depth of the winter. And as spring actually approaches, demand for physical oil begins to drop and supplies in storage tanks begins to rise as customers stop placing new orders and draw down the supplies in their own on-premises tanks rather than from quot;officialquot; inventories.

Nothing's quite normal
That's a description of a normal year. But the end of 2005 and the beginning of 2006 have been anything but normal. First, hurricane season devastated the production, refinery and storage capacity of the U.S. oil industry in the Gulf of Mexico.

That resulted in actual shortages for a limited period of time and it raised fears of future shortages and much higher prices during the coming winter season. The price of oil and oil products on the commodities exchanges soared as customers sought relief from their fears by locking in supplies at high prices and as speculators bet that those fears would drive prices even higher once the actual winter peak heating season arrived.

And second, that winter peak in demand never did arrive in late 2005 or early 2006. January 2006 was the warmest January on record in the United States, according to the National Oceanic and Atmospheric Administration (NOAA), with an average temperature 8.5 degrees F (or 4.7 degrees C) above the mean winter temperature from 1895 through 2005. Residential energy demand in January, NOAA calculates, was about 20% less than average because of the weather.

Add the two factors together -- one, a higher-than-usual fear of winter shortages going into the winter, and two, a warmer-than-expected winter -- and you have a recipe for a big run-up in the price of oil and oil futures at the end of 2005 and a larger-than-average decline in prices during the period of the normal seasonal slump in February.
Oil companies' costs rising
According to the inventory report issued on Feb. 15, U.S. crude oil inventories are now well above the average range for this time of year and are at the highest level seen since the week ending June 24, 2005. Crude oil closed that day at $57.15 a barrel, the lowest price since Nov. 30, 2005.

Unusually warm weather isn't the only thing that makes this seasonal drop and the coming seasonal recovery different this time. There's also inflation.

I don't mean the kind of energy price inflation that new Federal Reserve Chairman Ben Bernanke mentioned in his congressional testimony this week. On Feb. 15 and Feb. 16, Bernanke told members of Congress he continues to worry that the higher prices consumers pay at the pump for gasoline or that airlines pay for jet fuel will drive up the prices of goods and services throughout the entire economy.

No, the kind of inflation that I'm talking about here -- and that's an important factor in deepening and extending this seasonal drop in the prices of oil and oil stocks -- is internal to oil producers and drillers. In report after report on fourth-quarter earnings, oil companies have announced that their costs were up 15% to 20% in 2005, and that they expect the same kind of price increases in 2006.

Inflation in the oil patch
I'm not asking you to cry for any oil companies. They did quite well in 2005, thank you, and no oil executives are in danger of starving in 2006, either. But if you want to understand the depth of this selloff and form your own estimate of when the prices of oil stocks might start to rally, then you've got to understand how inflation works in the oil patch right now.

The fourth-quarter earnings report from Transocean (RIG, news, msgs) is typical of the way that inflation has created a problem for oil stocks.

On Feb. 13, Transocean reported earnings of 45 cents a share, 4 cents a share short of the Wall Street consensus. Revenue at $771 million, a 14% increase from the fourth quarter of 2004, was also short of forecast. The lower-than-expected earnings and revenue were about par for the course among companies that lease drilling rigs. A few days of extra maintenance or a longer-than-expected journey from an old job to the new job site can take days of revenue out of the quarterly numbers.

Losing a day's revenue at Transocean isn't trivial: In recently signed contracts, the company has been getting $147,500 a day for a jack-up drilling rig and $475,000 a day for an ultradeepwater drill ship.

Whacked by lowered guidance
Investors are used to this kind of earnings and revenue volatility from a driller like Transocean. What they're not used to -- and what whacked the stock price -- is flat guidance for the first and second quarters of 2006. Operating and maintenance costs, the company said, will be $30 million to $50 million, or 7% to 11%, above the level of costs reported in the fourth quarter of 2005. In the second quarter of 2006, the company expects costs to be $70 million to $90 million, or 15% to 20%, higher than in the fourth quarter. Wall Street's earnings estimates for the first half of 2006 may be, Goldman Sachs calculates, 65 cents to 70 cents too high. If Goldman Sachs is right, that would still leave Transocean showing first half earnings of 94 cents to 99 cents for 52% to 60% growth.

Which would be great, except that before the company lowered guidance Wall Street was projecting 132% earnings growth for Transocean in the first half of 2006. Maybe you can begin to see why Transocean shares are down 16% since Feb. 6.

Transocean isn't the only company to mention a 15% to 20% increase in costs. Oil and natural gas producer Encana (ECA, news, msgs), for example, said in its Feb. 15 report on fourth-quarter earnings: quot;Looking to 2006, the North American oil and gas industry continues to run at a fevered pace. The inflationary pressures of 2005 are expected to continue this year with cost inflation once again above 15%.quot;

A lengthy process of adjustment
Eventually, that 15% to 20% increase in costs won't have a huge effect on earnings in the sector. Transocean will pass it along to customers in future day rates, for example. Encana has cut its capital spending budget and reduced production -- still an 8% projected increase in total gas production in 2006 -- from some lower-yielding fields to improve margins.

But it will take a while for those changes to work their way through industry pricing chains. Transocean can't raise prices to make up for higher costs until a contract comes up for renewal, and right now the company is already 81% committed for 2006. And for Wall Street to revise its earnings projections to take into account shifts such as Encana's lower production and capital spending.

That process takes time, of course, and so inflation at the oil producers and drillers will also drag out the current correction in the energy sector. Most investors take their cues on valuation from Wall Street's calculations on what a company will earn. And until those calculations are in place, many investors will find it hard to buy on the dip. It's hard to be a bargain hunter when you don't know what the merchandise is worth.

Natural gas supply still lags demand
But nothing here -- not higher inventory levels, cost inflation or the seasonal dip -- changes the long-term trends driving the prices of energy commodities and energy stocks higher.

What hasn't changed?

The supply of natural gas in North America still lags demand, and that means higher natural gas prices for producers and a ready market for producers who can expand production. Last year looks like it will go down as one of the worst years on record -- the worst according to JP Morgan -- for natural gas production in North America. Adjusting for hurricane damage, production fell by 1% in 2005. Production in 2006, JP Morgan calculates, will fall another 0.5%. (By the way, Encana added reserves to replace 271% of production in 2005. For long-term investors, that far outweighs any revisions to quarterly estimates on Wall Street.
Energy stocks worth considering
There still aren't enough drilling rigs. The backlog for jack-up rigs, for example, climbed another 5% in January. International jack-up rig supply is sold out for 2006 and 90% sold out through 2007. And there's enough visible demand, Friedman, Billings, Ramsey calculates, to absorb all the rigs now scheduled to be built through the end of 2007. Day rates for drilling rigs have clearly not yet peaked.

I can't tell you when this year's extended version of the seasonal dip will bottom. For the adventurous who are either willing to build positions early -- before the bottom is clearly in sight -- or who trust their own valuations, I'd suggest a look at the following stocks among energy producers, a sector that I'd pretty much sold out of Jubak's Picks as valuations soared in 2005. With the drop, I think these five North American producers are worth a look again: Canadian Natural Resources (CNQ, news, msgs), Chesapeake Energy (CHK, news, msgs), Devon Energy (DVN, news, msgs), Encana and EOG Resources (EOG, news, msgs).

New developments on past columns
quot;Rising interest rates go globalquot;: Maybe the European Central Bank won't be so quick to raise interest rates after all. Fourth-quarter economic growth in Europe slowed to a crawl. For the 12-nation euro zone, gross domestic product grew by just 0.3% in the fourth quarter, down from 0.6% in the third quarter. Growth for all of 2005 came to 1.3%. (The U.S. economy, by contrast, grew by 1.1% in the fourth quarter and 3.5% for the year.) The biggest shock came from Germany, the euro zone's biggest economy. The German economy, which grew by 0.6% in the third quarter, ground to a complete halt in the fourth. Consumer spending fell for a fourth straight quarter and the economic sentiment index dropped by 1.2 points. The European Central Bank has been widely expected to raise interest rates another quarter of a percentage point to 2.5% next month. A hike like that would lead to a stronger euro and a weaker dollar. Backing off from that widely forecast move would likely undermine confidence in Europe's growth and its currency.