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Energy Sector Overview: Oil Cools Off While Natural Gas and Coal Gain Steam

Oil prices have been sinking dramatically since May 3, down 15 percent from their highs of over $113 a barrel. Hovering close to $90, some analysts see the current price of oil as more than a

Oil prices have been sinking dramatically since May 3, down 15 percent from their highs of over $113 a barrel. Hovering close to $90, some analysts see the current price of oil as more than a temporary dip, but a position it could hold for some time.

Energy stock wizard, Dan Rice of BlackRock is among the Wall Street tycoons that shares this opinion,
“Longer term,” he says, “our models suggest that oil prices are sustainable at around $90 a barrel. There will be periods when prices are considerably above that and periods when prices are considerably below that.” Rice, in an interview in Barron’s, goes on to explain that when prices exceed $90 a barrel as a result of high economic activity, it induces inflation and pushed down economic growth, inherently causing oil to fall again.

Oil, on its second consecutive day of selling, appears to be in the latter stage described by Rice. The dollar’s strength against other currencies prompted further weakness for the commodity, as did the recurring worry that China’s efforts to curb its economic growth and slow inflation would weaken demand. As the world’s second largest consumer of oil, lower Chinese oil expenditures could significantly influence demand.

The NYSE Arca Oil Index, fell 0.4 percent to 1,267 today. Notable decliners on the list included Apache Corp. (NYSE: APA) and Anadarko Petroleum (NYSE: APC). The Philadelphia Oil Service Index also declined 0.2 percent.

Other noteworthy oil stocks today included El Paso Corp. (NYSE: EP), which bucked the trend of losses on the oil index after hedge fund, Jana Partners LLC wrote in a regulatory filing that it increased its stake in the company to over 4 percent. The move is in line with investor interest, as they have encouraged greater division of the company in order to unlock exploration and pipeline value said a report by Dow Jones.

As oil, for the most part continues to decline, natural gas has been climbing higher, with the NYSE Arca Natural Gas Index rising 0.27 percent.

“At $25 a barrel equivalent, natural gas is really, really cheap relative to almost every other energy source out there,” Rice says “Even without government support, that will encourage people to switch whenever they can to use more natural gas, just because there is an economic reason to do it.”

Gastar Exploration Limited (AMEX: GST) added 3.88 percent while Chesapeake Energy added 0.89 percent. Range Resources (NYSE: RRC), in the news today for being significantly undervalued, climbed a mild .37 percent.

Coal also climbed higher today, despite the U.S. closing the doors to several coal-fired electric power plants. The positive trajectory was spurred by greater international demand. Coal is the least expensive energy resource outside of the U.S., a fact with the potential to push up prices as India, China and other developing nations seek out the cheapest options to power their growing economies. The rise in coal demand has been significant. The U.S. exported 60 million tons of coal last year; it will export 105 million tons this year. If the upward trend continues, shares of coal companies could continue to rise on a longer time-line.

Coal company, Alpha Natural Resources, Inc. (NYSE: ANR) benefitted from the new optimism toward coal, climbing 4.67 percent. Massey Energy (NYSE: MEE), was up 3.43 percent while Walter Energy Inc. (NYSE: WLT) tacked on 4.11 percent on high volume.