Mr. Pikul: It's creating a lot of volatility in stock prices. Investors are asking themselves what a reasonable long-term price is. The run-up last year was a bit more demand related to all the growth in China and limited spare capacity within OPEC. That thesis is probably still intact in the longer term. Obviously this recession has very much impacted the demand side of the equation. The run from the mid-$30s to back above $70, I think people are starting to realize, was largely unsupported by fundamentals. The market was quick to price in an economic recovery in the first half of 2009 but when it will show up is another story, so there may still be some near-term risk at current oil prices. You have the dollar trade shifting assets around that's clouding visibility into the true demand side of the story, which really hasn't improved that much this year. So we've tended to be a little on the sidelines during this run-up. We feel like the recent weakness is probably reflecting more of the true economic outlook and the static demand situation here for oil and petroleum products.
TWST: As usual, the market got ahead of itself?
Mr. Pikul: Yes. It tends to swing too far on either side in a lot of cases, but
at this time I think there is a glaring absence of supporting supply/demand data
that just simply didn't match the move from $35 to above $70. So investors who
are lightening their exposure to the group or waiting for a better opportunity
to buy may still get their chance - perhaps later this summer.
Tickers included in this excerpt: BRY, HK, RRC, WLL
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