The roller-coaster ride for oil and gas investors continued last week with the price of Brent crude rallying at the start of the week and breaking through the US$69 level before backtracking and ending below US$66 a barrel.
With the price of most oil and gas stocks having rallied off of their recent lows, now could be the time for investors to ask whether they should cut-and-run or stick around in the hope of higher prices.
An interesting perspective
While the shifts in the oil price are keenly watched by investors as they determine how to position themselves after the surprise plunge in this key commodity, last week also offered up an interesting perspective on what the future holds for oil and gas companies from one of the world's most respected investment minds…
Billionaire hedge fund manager Jim Chanos, the founder of Kynikos Associates, has reportedly (Fairfax Media) announced that he is short selling (betting that a stock will decline) oil and gas stocks including Royal Dutch Shell, BG Group and Chevron.
The most interesting fact
Interestingly, Chanos' negativity surrounding the prospects for these stocks is not primarily because the oil price is low but because of their exposure to Liquefied Natural Gas (LNG) production. Chanos reportedly analyses the LNG market as being flat and with capacity for supply to skyrocket – a scenario he described as "a disaster waiting to happen".
What should shareholders do?
Like all investors, Chanos doesn't get every call right. Chanos is however known for his deep, thorough and insightful research. For shareholders of ASX-listed oil and gas stocks particularly the LNG majors such as Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO), Origin Energy Ltd, (ASX: ORG) and Oil Search Limited (ASX: OSH) this may be worth noting. However, these stocks of course need to be analysed on an individual basis, and an ability to comprehensively refute Chanos' view is an important analysis to undertake as an investor.
