In this issue:

 Natural gas is having its worst weekly selloff in 18 years, yet the prospect is for higher prices in the months ahead, to rebuild historically low reserves that might otherwise limit the rate of withdrawals from storage. Many of the drillers poised to profit from the improved pricing are already among our top picks and performing well. And several of those still look highly attractive for new buys.

The last two weeks have been very good to the 12 best buys we set at the beginning of the year, helping many outperform the market and the energy sector by a healthy margin. Five of the names have now earned a higher buy limit to permit the continued accumulation of positions in these market leaders.

But we’re also sensitive to the fact that some portfolio positions need to be pruned to raise the cash for new buys and limit the risk of market trends going against us. In the portfolio action summary below we recommend halving stakes in top portfolio 2014 winner American Railcar Industries (Nasdaq: ARII), reiterating the advice in Monday’s Energy Letter, and also in the two refiner holdings especially exposed to the recent shrinkage in crude differentials and profit margins.

Finally, we’re adding two uranium miners to the portfolio in recognition if the fact that today’s low prices are sowing the seeds of future fuel scarcity, as has already happened with natural gas. Commodity producers respond to market signals, which is why prices move in cycles. The best time to buy is when prices are unsustainably low, as is the case today with uranium.          

Portfolio Action Summary

• Adding Cameco (NYSE: CCJ) to the Aggressive Portfolio. Buy below $27.

• Adding Denison Mines (NYSE: DNN) to the Aggressive Portfolio. Buy below $1.90

• Selling half of the position in American Railcar Industries (Nasdaq: ARII)

• Selling half of the position in Tesoro (NYSE: TSO)

• Selling half of the position in HollyFrontier (NYSE: HFC)

• Raising the buy below target on Carrizo Oil and Gas (Nasdaq: CRZO) to $54 from $46

• Raising the buy below target on Targa Resources (NYSE: TRGP) to $105 from $97

• Raising the buy below target on Williams (NYSE: WMB) to $46 from $42

• Raising the buy below target on EQT (NYSE: EQT) to $110 from $95

• Raising the buy below target on EOG (NYSE: EOG) to $200 from $180

Commodity Update

It is shaping up to be a good quarter for oil producers, as the price of West Texas Intermediate (WTI) continues to trade above $100/bbl. WTI traded Tuesday at $101.84 per barrel, up $1.55/bbl from two weeks ago. Brent traded up $0.77/bbl to $109.53, which reduced the Brent-WTI spread to $7.69/bbl. A year ago this week the spread was peaking at ~$22/bbl, which means year-over-year results for refiners are going to be worse this year than last year. Natural gas inventories are headed toward record low territory, which has resulted in surging gas prices. In recent days prices have pulled back though, trading Tuesday to $4.98/MMBtu, which is still up $0.11 from two weeks ago.

In Other News

• Reuters reported that General Electric (NYSE: GE) would increase its spending on energy projects such as waterless fracking and gas turbine efficiency by $10 billion through 2020

• An article in Barron’s attacked Kinder Morgan Energy Partners (NYSE: KMP) for aggressive accounting and the high distribution incentives it pays to  general partner Kinder Morgan (NYSE: KMI)

• Conservative Portfolio holding Chevron’s (NYSE: CVX) latest 10-K filing shows that its crude production cost has risen 56 percent in three years

• Chesapeake Energy (NYSE: CHK) announced that it is shopping its oilfield services division, which could mean an outright sale or a spin-off to shareholders

• An analysis by The Wall Street Journal concluded that crude from the Bakken formation is more explosive than comparable light crudes

Source: The Wall Street Journal analysis of several light crudes

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