Oil stocks outrun fundamentals with 300% gains in 3 months

Chicago

AS OIL flirts with US$50 a barrel, investors are trading drilling stocks as if crude were selling for US$80, and that's the kind of optimism that leads to corrections.

Legendary short-seller James Chanos said last week that he's considering wagering against explorers because they've got ahead of themselves. In the last three months, Denbury Resources Inc, SM Energy Co and California Resources Corp have all quadrupled in value as the price of oil rose by just 52 per cent.

"The equities have really outrun the fundamentals," said Vincent Piazza, a Bloomberg Intelligence analyst. "The bullish factors people have been looking at - the Opec-Russia freeze that didn't happen, Nigerian oil going offline, Canadian wildfires - are all more transitory than anything else." Since hitting a 12-year low on Feb 23, an index of North American oil and gas explorers has surged about 65 per cent, compared with the rise in West Texas Intermediate, the benchmark US crude, according to data compiled by Bloomberg. American natural gas has returned a relatively anaemic 15 per cent increase duri…