Portfolio review of the week - 5th March 2011

After being in positive territory for much of the day, the FTSE 100 fell back towards the close as the DOW Jones moved firmly into the red. The FTSE 100 closed down 15 at 5,990, down 0.2% on the week. The Dow Jones Industrials finished down 88 at 12,170, but still up 0.3% on the week.

Rising crude oil on continued turmoil in Libya worried investors. WTI (West Texas Intermediate) crude moved close to $105 a barrel (up 6.7% on the week) and Brent Crude moved above $116 a barrel as reports came in that that clashes between Gaddafi's forces and rebels were occurring at the Ras Lanuf, a major oil terminal, in Libya. On a positive note, the U.S. unemployment rate dropped to 8.9% in February, the lowest rate in almost two years, with the addition of 192,000 jobs. But investors are concerned that corporate earnings growth may be curtailed by the extraordinary rise in the oil price in recent weeks. It seems likely that the U.S. Federal Reserve will maintain low interest rates to maintain economic growth despite concerns about inflationary pressures. 

It has been a week of fairly heavy trading in the Contrarian Investor UK portfolio as I have tried to free up funds to take advantage of the plunge in the share price of Xcite Energy mid-week to around the £3 mark, which was a buying opportunity not to be missed. I sold some Sirius Minerals (fortunately at the week high) and my Encore Oil position to fund Xcite. Overall a much better week after an awful February, with the market seemingly wanting riskier stocks in AIM again after weeks of selling off.

Xcite Energy (XEL) - Xcite had a great finish to the week, closing at 339p, up 8.5p on the day. On Wednesday the shares flirted with the £3.00 level on false rumours that the forthcoming reserves report was being "fixed" and that the flow test completed in December was flawed. It was a classic "bear raid" with the shares being pushed down by the market makers. On Thursday we saw the inevitable bounce and after buying heavily on the dip, I took some profit yesterday. I have tucked a good chunk away in my SIPP (Self Invested Personal Pension) at £3.01, since with production only 10 months away (at 15,000 barrels a day), this share will be going 2-3 times higher I am sure. In the medium term (i.e. less than a month) we are likely to see the Reserves Report and then the CPR (competent persons report). A great lesson for investors not to get spooked by nonsense rumours on the bulletin boards. Be sceptical of anyone, even if they appear "in the know".

Encore Oil (EO.) - Though the North Sea explorer announced it had spudded two wells this week, I have sold my position in Encore on Friday at a profit to increase my holding in other portfolio stocks, notably Weatherly International. I believe Encore is a great stock to own, but having analysed the current market capitalisation, exploration upside is needed to drive a further appreciation in the share price i.e. the oil finds to date support the current share price, but there does seem to be a big discount. I will buy back in on any weakness since its drilling prospects look enticing. 

Weatherly International (WTI) - A bit of a sell of in Namibian copper producer, Weatherly, late in the week meant it was time to increase the holding. With over 4000 tonnes of copper due to be produced by the company this year (with a selling price of over $9000 a tonne), revenues will begin to increase significantly in the second half of the year. In addition there is considerable upside from projects due to come on stream within the next 18-24 months. I am struggling to see why WTI is not significantly higher than 12.5p, especially when its operations are in a relatively benign part of the world (and the Namibian government own nearly 9% of Weatherly derisking further). I guess a watch and wait on this one for now!

Solomon Gold (SOLG) - A big sell off in Solomon Gold this week meant it hit 26p. I have been initiating a position this week on this decline and believe the company offers good value given its exploration prospects. (see previous post - http://contrarianinvestoruk.blogspot.com/2011/03/solomon-gold-solg-is-based-in-brisbane.html)

Rockhopper (RKH) - Good to see a nice 6% bounce to 246p as the big seller finally seems to be out of the way and the results from the 14/10-4 well loom ever closer. I bought a little more yesterday as the momentum on this stock finally seems to be turning positive after a drop of more than 40% after the 14/10-3 well in February. 

Bowleven (BLVN) - A very strong week for Cameroon oil explorer Bowleven, with the shares rising 7% on the week to 359p. A couple of weeks ago they had dropped below £3.00, and were completely oversold given the prospects. A Goldman Sachs conviction buy addition finally turned the corner and its been up ever since. I took the opportunity to sell some BLVN to invest in SOLG, RKH and WTI.

Sirius Minerals (SXX) - Nothing new to report on Sirius. A volatile week though with the shares closing at 14p, 7% rise on the week. They hit 15.5p on Wednesday, triggering a sell which was invested in Xcite Energy.  

Brent crude oil hits $119

Brent crude oil for April delivery went up as high as 6% this morning, $17 in the last week. Worries about Libya and possible contagion to other oil producing states were behind the rise. No one wants to be left short if things kick off in the Middle East, triggering panic buying. Its incredible to think that oil dropped to close to $20 during 2009.

Guardian - Oil price could hit $220 a barrel

Oil price 'could hit $220 a barrel'

Experts at Japanese bank Nomura raise spectre of doubling in oil price if unrest in Libya continues

• • Share78
  • 
  • 

• Simon Goodley and Terry Macalister
• guardian.co.uk, Wednesday 23 February 2011 18.57 GMT
• Article history

Traders work the crude oil options pit at the New York Mercantile Exchange on 23 February. Oil prices soared as unrest in Libya continued. Photograph: Mary Altaffer/AP

The continuing violence in Libya and fears that the unrest will spread to other parts of north Africa and the Middle East could create the biggestoil shock since the first Gulf war, analysts have warned.

Up to half of Libya's oil production is now estimated to have been shut down as a result of the crisis engulfing the country – creating supply concerns that pushed the price of Brent crude above $110 a barrel, now experiencing its biggest three-day gain in a year.

Commodity analysts at Japanese bank Nomura raised the possibility that prices could perhaps hit $220 a barrel. In a note to clients the bank warned: "The closest comparison to the current unrest in the Middle East and north Africa is the 1990-1991 Gulf war. If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and Opec spare capacity will be reduced to levels seen during the Gulf war and when prices hit $147 in 2008."

The alarmist view was partly backed up by Marco Dunand, chairman and co-founder of Swiss energy trading group Mercuria Energy. Dunand predicts that oil could rise above $150 a barrel, if the unrest continues to spread.

"I don't want to over-hype things, but there are scenarios under which oil could go above $150 without a doubt and those scenarios are to do with stability in the Middle East if things start spreading," he said. Dunand reckoned $150 was a "20% possibility".

Surging oil hit world stock markets, with the FTSE 100 closing down 73.23 points at 5924 and the Dow Jones trading down around 93 points at 12,119 as London traders went home.

Economists typically reckon that a $10 a barrel increase in the price of oil knocks about half a percentage point from global GDP growth. However, in a more measured note, Julian Jessop of Capital Economics said: "We continue to expect oil prices to drop back sharply later this year. In part this is because we think that Libya will be both the first and the last of the major oil producers to see significant disruption (and indeed that the Gaddafi regime itself will fall soon), allowing the risk premium to fade away."

The situation in north Africa and the Middle East, and the knock-on effect on the price of oil, is causing others to reconsider the issue of energy security.

Andrew Horstead, risk specialist at energy and carbon management company Utilyx, warned of the dangers of being too energy dependent on the Middle East. "The unrest we're seeing in Libya is already having an impact on oil supply but the real issue will come if the trouble spills over into Saudi Arabia," he said. "The rise in oil has also hit European gas markets, with UK gas prices for winter delivery rising 9% in a little over two weeks, while there are reports that Libyan gas supplies to Europe have also been stopped.

"The closure has sent jitters through a market already nervous about the potential disruption to Europe-bound liquefied natural gas (LNG) through the Suez Canal. The developments in north Africa and the Middle East highlight just how interconnected the energy market is and how the UK's energy supply is at the mercy of events happening in other countries. It's essential that more emphasis is placed on producing energy within the UK if we are to secure our energy supply."

Will tomorrow bring the long awaited Xcite Energy RNS?

A day of anticipation of an RNS from Xcite Energy relating to the rig contract came to nought. However, no panic here. Disappointing that the share price dropped 8.5p late in the day to £3.62 after holding firm despite the FTSE taking a beating in the morning but I guess some of my fellow private investors are looking for bad news even if there's no hint of one!

Oil prices rose today to their highest in more than two years with WTI Crude for March delivery gaiing 3.2%, at $92.2 a barrel (its highest sine October 2008) and Brent Crude rose to more than $1.50 to as high as $101.08 a barrel. Its all time high is $147 a barrel hit in July 2008 before the financial collapse.

The reason for the oil price hike continues to be Egypt, with 2 million barrels per day passing through the Suez Canal plus a a further 1 million barrels move through the Suez-Mediterranean pipeline.