Retail energy trades blow up in otherwise calm energy markets

Retail energy trades blow up in otherwise calm energy markets

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Energy commodities and large-cap energy stocks performed reasonably well Thursday, while thematic small-cap energy names traded sharply lower. With small-cap names in other sectors (IWM) trading in line with larger-cap peers (SPY), there’s no clear explanation for the small-cap energy route.

Brent (CO1:COM) and WTI (CL1:COM) traded up ~1% near mid-day Thursday. US natural gas (NG1:COM) fell ~2% on a larger-than-expected inventory build, though European natural gas closed higher by almost 5%. Seaborne thermal coal prices also rallied, with Newcastle coal (XAL1:COM) rising ~$5 to $331.

In large cap energy, Exxon (XOM) caught an upgrade from RBC and traded higher on the day, alongside Cheniere (LNG). European majors Shell (SHEL) and BP (BP) also closed higher in Europe, though both names moved lower during US afternoon trading. EQT (EQT) performed poorly, despite an increased price target from Piper Thursday, as US natural gas prices weakened.

Interestingly, small-cap energy stocks, largely owned by retail investors, collapsed in afternoon trading. Tellurian (TELL) has been a favored small-cap play on the emergent natural gas export theme. Despite increased European gas prices, Tellurian (TELL) shares fell over 7% Thursday. Coal stocks, largely ignored by institutional investors, traded lower, led by Peabody (BTU) and CONSOL (CEIX); both names fell over 10% despite rising international coal prices. Uranium focused names also collapsed, with Cameco (CCJ) and the Sprott Uranium Trust (OTCPK:SRUUF) falling 8% and 6%, respectively.

Following very strong performance year-to-date, perhaps traders are taking profits ahead of Q1 results. However, oil, gas, coal, uranium and refined product supply fundamentals have never been stronger, suggesting Q1 results could reward those remaining in small-cap energy trades.

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