Flash alert: Natural gas stocks are on the move.
Bloomberg wrote yesterday that “US natural gas is the cheapest its been relative to oil since the 1991 gulf war, raising the prospect of a windfall for investors who sell crude and buy the other heating fuel.”
I’m not too sure about the wisdom of selling crude, except as the second leg of a bullish spread. But we do know that traders are waking up to the natural gas situation.
Your humble editorial director is enjoying blue skies and walking-around temperatures here in northern Nevada. (It’s tough living with 300 days of sunshine a year, but someone’s got to do it.) Back east, though, in cities like Baltimore and Chicago, bitter cold has set in.
Natural Gas Profits: Big Living Room, Big Volatility
One overlooked factor is the sheer size of homes constructed these past few years. With all the 3,000 square-foot monsters put up during the housing boom, Americans are heating more square footage overall in the winter months. This increases the volatility of the demand swings, especially during a cold snap.
There are longer-term reasons to be bullish on natural gas too. In sum, North America (including Canada) is essentially “running to stand still” in terms of natural gas production. We’ll get more into those details later.
For now, natural gas futures are trading near the top of an extended sideways range that runs all the way back to early 2006. If they break out, there could be some real upside ahead.
As for natural gas stocks, two solid favorites of mine from way back are Chesapeake Energy (CHK:NYSE) and Encana (ECA:NYSE). Notice what they’ve done in recent days. Encana in particular could be ripe for a swing trade buy, with favorable action on both the daily and weekly charts. Happy hunting.
Natural Gas Profits: Crude Back in the News
In other news, crude oil is hopping once again. The black stuff hit a one-month high earlier this week as El Comandante Junior (aka Hugo Chavez, the loudmouth president of Venezuela) got into a shouting contest with Exxon.
Doing business in Venezuela has been a slightly dodgy proposition ever since Chavez started getting serious about implementing a “new socialist revolution.” When he decided to tear up all existing oil contracts and rewrite them heavily in Venezuela’s favor, most of the oil majors meekly went along, figuring they needed keep doing business in Venezuela. Exxon, however, decided to play hardball, protesting the actions in court.
As a result, AP reports, a British court has ruled in favor of Exxon, ordering a “freeze” of $12 billion in Venezuelan assets. Court judgments against countries are tricky things, but the result was a big win for Exxon. At least in the first round, the company’s willingness to play hardball has paid off.
Natural Gas Profits: Hey, Mr. Danger
Chavez’ natural response to the news was to blow his top.
“If you end up freezing (Venezuelan assets) and it harms us, we're going to harm you,” he said. “Do you know how? We aren't going to send oil to the United States. Take note, Mr. Bush, Mr. Danger.”
“Mr. Danger” is Chavez’ new nickname for Dubya. Apparently “the devil,” his old nickname, had gotten a little stale. If I were Bush -- and thank goodness I’m not -- I would prefer “Mr. Danger” anyway. It has a ’60s-ish James Bond ring to it. Makes you want to hum the tune to “Secret Agent Man.”
In his words and his deeds, Venezuela’s president acts like a larger-than-life cartoon character. His outbursts would be pure comedy gold if not for the fact that the man himself is so dangerous.
Natural Gas Profits: How Serious?
And how about the seriousness of the threat? Could Venezuela really up and turn off the taps to one of its largest customers? Could Chavez afford to cut off his nose to spite his face in such a manner, and forego such a significant profit stream?
To get a better handle on the situation, I checked in with Christian DeHaemer of Crisis Trader and Material Profits.
(One of Crisis Trader’s specialties is taking advantage of wild situations like what we’re seeing in Venezuela now, where strong assets are left undervalued in the wake of turmoil. So Chris is naturally right on top of this stuff.)
“If Chavez was able to fulfill his threat, the price of oil in New York would hit a record price overnight,” Chris told me. “Our strategic petroleum reserve has about 21 days of oil.”
So regardless of whether or not it happens, the strategic implications of the Chavez threat are very real. I asked Chris if he was worried -- whether he thought Venezuela would actually go through with such an explosive move.
Natural Gas Profits: Calling the Bluff
“I’m taking the other side of that bet,” he said. “Chavez is standing on a shaky political platform lately. His new constitution was voted down. Rumors have it that the generals would not support his side in the face of a public uprising -- so Chavez has had to accept the people’s choice.
“His goofball dictator economics have left oil-rich Venezuela in a shambles. Inflation is rampant, the black market is thriving, and his threats to nationalize major companies means that no one is spending money to fix the problems.”
Chris continued with a personal recollection: “I was in Manhattan a few years ago having a conversation with a beautiful bartender. Her father -- a major business leader in Venezuela -- had moved lock, stock and barrel to New York after her family had been in Venezuela for more than 150 years.
“She said all the people who could were leaving and there would soon be nothing left. I asked her, when the time came, what would an investor find of value. Next time, I’ll let you know what she said.”
No doubt Crisis Trader will find some intriguing back-door plays to take advantage of this escalating Venezuela situation. Taipan Daily will keep you posted. And if you have any questions for Christian Dehaemer of Crisis Trader, email them to
e-news@taipanfinancialnews.com.
Warm Regards,
JL