Slim Pickings in the Oil Patch

05/07/2007 12:00 am EST


Peter Way

Founder and CIO, Peter Way Associates

Peter F. Way, editor of Block Traders’ Oil & Gold Monitor, says there aren’t many bargains left among energy stocks but mentions a few he finds attractive.

It is getting harder to find attractive energy stocks, and they tend to be less promising than earlier in the year when they were attractively priced. But a few opportunities still remain.

The independent refiners are at present profiting far more than they have in the past, mainly from a shortage of refining capacity and the resulting widening of the difference between crude oil prices and refined-product prices. In the trade that gap is known as the “crack spread,” referring to the catalytic cracking process that is used to refine crude into gasoline, heating oil, and other products.

Wider crack spreads also profit the major integrated producers, but the effect is intensified in the independent refiners, where it is their principal source of profits. The best-priced refiners at this point are Holly (NYSE: HOC) and Tesoro (NYSE: TSO). Both have currently attractive prospects and strongly advancing trends in stock prices and expectations. (Holly traded just above $63 and Tesoro changed hands at around $116 Monday—Editor.)

Another group of oil patch participants without reserves is the oilfield services and transport companies. They prosper when crude prices are high because their activities have even greater value to the production arms of the integrated companies and the independent producers.

Prime opportunity prospects from the oilfield services group are World Fuel Services (NYSE: INT), Tenaris (NYSE:TS) and Superior Energy Services (NYSE: SPN). The oil transporting community is primarily an ocean tanker trade where experiences can vary widely. Right now the prospects for Ship Finance International (NYSE: SFL) also appear to be strong as appraised by the volume market-makers for its stock. (World Fuel changed hands at around $47 Monday while Tenaris sold at $45; Superior traded at between $36 and $37, and Ship Finance was at a new 52-week high just north of $30—Editor.)

The alternative energy fuels business, like the major integrated oils, looks like its near-term future is pretty fully anticipated by current prices. One possible exception is Cheniere Energy (AMEX: LNG) whose facilities to handle a growing volume of ocean-transported liquefied natural gas have supported excellent stock price growth in the past. The stock’s ability to continue attractive growth appears to have caught up with its past outstanding price rise, and now more growth seems to be in sight. (It traded at $33.65 Monday—Editor.)

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