Today's Energy Laggards
Jun 12th 2012 9:18PM
Updated Jun 12th 2012 9:22PM
The energy sector has been the bottom-feeder of the market over the past year, losing 17.5%. The huge discount can be attributed to record-low natural gas prices as well as shrinking demand for coal. While the consensus is that natural gas prices will trend higher over the long term because of increased demand, coal is not as certain. In fact, the percentage of electricity generated from coal is expected to fall back to levels not seen since the 1940s. And with oil prices decreasing over the past few months because of eurozone uncertainties and slowing growth in China, the sector could continue its slide in the near term.
July futures for WTI crude were crushed yesterday by the weight of the European financial muddle, dropping 2.62%. Today, however, the futures rose on expectations that the Federal Reserve will eventually roll out QE3 this year.
|Index||Price||Gain/ Loss %|
|Crude Oil Volatility Index (INDEX: ^OVX)||39.45||(6.76%)|
|Henry Hub Natural Gas||2.21||(0.18%)|
Source: CME Group.
All applying a slight upward pressure on crude prices is OPEC's expected strategy of tightening oil production in an attempt to increase oil prices. With the cartel meeting on Thursday, markets might have to react to slowing production threats soon.
Let's see today's laggards
ATP Oil & Gas (NAS: ATPG) -- down 7.10%The freefall continues for this offshore oil and gas producer, which has lost 20% of its value in the past five days. The price decrease is justified, though, as ATP faces a monumental economic challenge, with expensive production costs and steep debt issues. ATP exchanges its oil and natural gas on a hedged and unhedged price of $98.98 per barrel and $4.77 per million BTUs, respectively. With the marginal cost of offshore drilling leaving no room for profits and a debt-to-equity ratio of 1,410%, the future looks bleak.
Niska Gas Storage (NYS: NKA) -- down 2.76%
Niska Gas had a slight correction today after a strong run so far this year, with the natural gas storage company up 25% so far this year. Today, Alerian announced that Niska will be dropped from its index after trading on Friday, adding Atlas Pipeline Partners (NYS: APL) into the Alerian Natural Gas MLP Index.
Alpha Natural Resources (NYS: ANR) -- down 2.25%
Today should close the books on the water-pollution lawsuit between Alpha Natural and residents of Boone County, W.V., as both sides are putting the finishing touches on an undisclosed settlement. However, the real problem is not specific to Alpha Natural, but rather to the whole coal industry, as the market is continually shrinking, causing huge sell-offs. Alpha Natural plans to curb its production by 11.5 million tons of coal this year, as the industry continues its slide.
With increasing natural gas production and limited LNG export facilities, gas prices are expected to remain depressed until more infrastructure is built out. However, crude prices will remain volatile until eurozone economic troubles are alleviated. With increased instability expected in the market, now is a great time to check out The Motley Fool's special report describing 3 Stocks That Will Help You Retire Rich. This free report will list three remarkable companies as well as offer great advice on how to invest to secure a comfortable retirement -- get your free report now.
At the time this article was published Joel South owns shares of no company listed above. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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