Wheaton Precious Metals (WPM) is on track to meet or exceed its guidance both for this year and for ...
Opportunities as Crude Prices Stabilize
05/08/2007 12:00 am EST
Curtis Hesler, editor of Professional Timing Service, says oil prices should hold steady for a while—and that’s good for refiners and other selected energy investments.
Crude oil is consolidating between $69.00 and $62.00. Overhead resistance at $69.00 looks formidable at this point, and I don’t expect to see any fireworks in the crude pit until August. My recommendation is to hold your Canadian trusts and other energy issues.
The Canadian trusts have recovered some due to stronger crude prices and a move in the Canadian dollar from about $0.86 to over $0.89. I do not recommend that you buy more Canadian energy trusts as long-term investments, [although] given the problems these companies face and the generous dividends still available (albeit temporary in some cases), they make excellent trading candidates. The trusts have recovered some, but they are nowhere near as high as they should be with crude at $69.00.
On the other hand, I am very pleased with the performance of our non-trust energy investments that we have made so far this year. Transocean (NYSE: RIG) [at $89] is well ahead of our $75.00 buy price and Frontline (NYSE: FRO) [at $40 is up about 30%] from our buy at $31.00—plus we got a $2.05 dividend and some spin-off shares in Ship Finance worth another 95 cents. They have since announced a more regular dividend policy of $0.625 per quarter with excess cash being spent for buybacks, extra dividends, etc.
Apache (NYSE: APA- $75) is performing as expected and looks good as a buy (as do the others) if it pulls back some here. We have also owned Valero and Frontier Oil (NYSE: FTO-$35) since 2005, and they have done very well for us.
I particularly like the refiners. They have the ability to refine sour crude, which is becoming more prevalent on the market as the sweet crude fields peak out. I think you will find that once the numbers are gathered, 2006 will become the official year that global crude oil production peaked out. In this process, sour high-sulphur crude will make up more and more of available supply to the distinct advantage of those few refiners that can process it.
Another aspect of sour crude is that it sells for a significant discount to sweet crude, and the difference goes straight into the refiner’s profit column. You will pay the same price for gasoline no matter what type of crude it is made from. Frontier has the advantage of being located outside the hurricane regions, and it’s not susceptible to storm damage like Valero. However, Valero has the ability to efficiently make “boutique” gasoline blends, and it is estimated that every penny that gasoline prices move up, Valero makes an extra $1 million profit!
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