But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Overview: Why the outperforming energy sector affects investors
For some time, I have been advocating an overweight to this sector, and I continue to stand by that position. The sector provides an important feature today.
As I write in my new weekly commentary, there are a couple of reasons that, despite the surge in domestic production, oil prices have reverted back to the upper-end of a multi-year trading range.
Oil prices should be declining. Russ explains why they’re on the rise instead, how this has helped energy stocks in 2014 and why investors should still consider an overweight to the global energy sector.
While natural gas prices throughout 2014 are up from last year, with 1H14 prices averaging $4.60 per million British thermal units (or MMBtu) compared to the 2013 average price of $3.73 per MMBtu, they’re still lower than historical levels.
However, natural gas rigs have decreased throughout 2014—at the beginning of this year, natural gas rigs drilling totaled 372. The current natural gas rig count of 318 represents a drop of 54, or ~15%.
Since the beginning of 2014, oil rig counts have increased by ~13% at +184—there are currently 1,562 oil rigs at work.
The spurt in the number of horizontal rigs has been due to the discovery of a huge quantity of oil and gas in shale formations in the U.S.—this has led to the development and production of large amounts of oil and natural gas in the United States.
During 2Q14, U.S. onshore rig counts increased 4% to 1,796 from 1,724 rigs in 1Q14—during 2Q14, well counts increased the most in the Permian Basin at 11%, Marcellus at 16%, and the Granite Basin at 23%, compared to 1Q14.
The increase in rig count was led by increases in horizontal and directional rig drilling—year-to-date (or YTD), the total U.S. rig count has increased by 132, or 8%, oil rigs have increased by 176, or 13%, and natural gas rigs have decreased by 54, or -15%.
On July 24, the U.S. Energy Information Administration (or EIA) reported that natural gas inventories increased by 90 billion cubic feet for the week ending July 18.
Natural gas prices directly affect earnings for gas-weighted producers such as Chesapeake Energy Corporation (CHK), EQT Corporation (EQT), Southwestern Energy Company (SWN), and Range Resources Corporation (RRC).
The decline in supplies is attributed to a sustained demand from refineries. Demand from refineries are running at record levels, near 16.8 million barrels per day, for the last couple of weeks.
The markets monitor crude inventory figures because inventory data can indicate supply and demand trends. If an increase in crude inventories is more than expected, it’s bearish for crude oil prices.
In April, CHK sold 337 compression units to EXLP for $360 million.
Peabody Energy (BTU) operates only thermal coal mines in the U.S.
Wall Street analysts’ consensus estimate for loss per share was $0.289.
The company’s accounts receivables reduced to $447 million on June 30, 2014 from $557.9 million on December 31, 2013.
The U.S. operations recorded 6.2% growth in revenues from $970.9 million to $1.03 billion.
The company also has operations in Australia where it produces both thermal and metallurgical coal.
Natural gas prices throughout 2014 are up significantly from last year. But, natural gas prices are still lower than historical levels.