The natural-gas sector rose Monday as investors expected a continuation of recent strong demand and surging commodity prices.
The Amex Natural Gas Index dropped 1 percent to 590.67 as April natural-gas futures slid 10.4 cents to $9.665 per 1,000 cubic feet on the New York Mercantile Exchange. However, the index and prices have marched higher this year along with oil prices _ which set a new trading record on Friday. A cold winter resulted in higher natural-gas demand and pricing as well.
Calyon Securities analyst Carin Dehne Kiley noted that natural-gas inventory levels have parted from the five-year average by nearly 5 percentage points since the start of the year. Kiley expects that trend to continue, with flat liquefied natural-gas prices, fewer imports from Canada and higher demand from the power generation sector.
"These factors, combined with strong crude oil prices, should provide support for natural gas," Kiley wrote. The analyst also said it appears that oil and gas companies are not "rushing to hedge more than normal, suggesting they believe there could be further upside."
Citi Investment Research analyst Gil Yang held a "bullish" outlook on natural gas over the long term, but remained "cautious" in the near term, "given the sector's recent run up and the approaching spring weather."
Yang recommended investors look to Anadarko Petroleum Corp., Forest Oil Corp. and Pioneer Natural Resources Co. for the best returns. Anadarko's size and scope make it an attractive investment, while Forest Oil's new management has the company's restructuring plan on track to hit further operational targets, Yang said.
Investors have undervalued Pioneer's "solid" track record of identifying and exploiting resources opportunities, Yang added.
Anadarko shares rose 33 cents to $64.05, as Forest Oil remained unchanged at $46.25 and Pioneer gained 45 cents to $47.71.
Elsewhere in the sector, Quicksilver Resources Inc. gained 11 cents to $34.76; Apache Corp. rose $1.47 to $117.69; Southwestern Energy Co. edged up 17 cents to $63; and EnCana Corp. added 58 cents to $77.55.
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