Peter Linder sounds like a man who’s just had a root canal.

To an oil and gas fund manager, it is worse than that.

With oil and natural gas prices in the stratosphere and all hell breaking loose over the so-called terror risk premium, oil and gas investors have been stricken with an alarming case of Mad Sell Disease.

“Uhhhhh!!!” the normally cheerful Linder wails on the phone, sounding like he’d rather be in the dentist’s chair. “It’s terrible. Investors are behaving irrationally and I can’t figure out why.

“Of course,” he adds, “I’m as bullish as ever.”

Oil has soared this year to more than $40 US per barrel from $30 and natural gas has spiked to $6.61 from $5.15 US per mcf.

Yet, much to the chagrin of Linder, a Calgary investment strategist at DeltaOne Capital Partners, the publicly traded producers are stinking out the joint, severely lagging record-shattering commodity prices.

With oil and gas investors selling like mad in May, the TSX/S&P energy sub-index is up a measly four per cent, year to date. Worse, from Linder’s perspective, is the fact that the DeltaOne Energy Fund was recently down 9.2 per cent, year to date, after being Canada’s hottest energy fund last year.

Giants in the industry such as EnCana (ECA-TSX), Shell Canada (SHC-TSX) and Imperial Oil (IOC-TSX) have mustered only paltry gains of less than five per cent, year to date. Among the larger caps, the real action on the upside has been in the income trust space where royalty trusts such as Vermilion, Peyto and Enterra have outmuscled most of the heavy hitters.

Most of the pain has been inflicted in the junior sector where numerous well managed and profitable companies have seen their stocks go into a puzzling freefall in the past two months.

Linder has been known to be bullish even when the street is shunning oil and gas stocks. Yet, this time, the former Research Capital analyst has plenty of company as many other analysts and money managers are also dumb-founded by the recent swoon in share prices.

“I’ve been doing this for 10 years and I’ve never seen it before,” mutters Linder.

“The only time I’ve seen the oil and gas sector weaken in the past as it is now was when commodity prices were cratering, the outlook was bearish and/or the overall market was crashing. But that’s not the case now. I can’t think of any explanation that would justify what’s happening.”

Indeed, getting investors to accept sky-high commodity prices has been like pulling teeth. Are investors in denial about $40 oil and expecting a major correction based on what is being perceived as an $8 to $10 US terror premium?

“Maybe that’s the case,” says Linder. “Maybe people don’t believe it. They seem to think (oil) prices will go down to $30. But my question is, why should they go down to $30?

“We’ve got strong demand, weak supply, lower inventories, major political upheaval worldwide, huge growth in places like China and a world economic recovery.”

While most analysts are forecasting oil prices to average in the low 30s or mid-30s, Linder believes prices will average close to $40 this year and $38 next year.

That should eventually fuel an uptrend for oil and gas stocks, but that scenario could play havoc with corporate profits and grease the skids for a slide of the overall stock market.

“I’d say that between now and the end of next year, oil prices will be in the $36 to $42 range,” says Linder. “This short-term irrationality provides a fantastic buying opportunity.

“It’s got to. The earnings cash flow estimates for the year are way, way under- estimated by investors and analysts because they’re using lower commodity prices. I believe that the earnings cash flow just for the second quarter of this year will amount to 50 per cent of what analysts are forecasting for the whole year.”

Linder also believes natural gas prices could rise even higher in the summer.

“If we get a hotter than normal summer, which is projected, natural gas prices will keep rising.”

Linder’s top stock picks are all upstart juniors weighted toward natural gas production. For his top picks, see story headlined 'Mad Sell Disease' has sector in an uproar'.

* $50 OIL ON DECK? Don’t bet against it, says Marshall Adkins, oil analyst with CIBC World Markets.

“You have less excess in OPEC than you’ve had at any other time,” says Adkins. “Our buffer (excess supply) in the system is smaller than we’ve ever seen. If any one of the five guys (two-million-barrel-a-day producing countries Saudi Arabia, Iraq, Iran, Nigeria and Venezuela) goes offline (in production), you get not just $40 US oil but north of $50.”

* GUSHING MINISTER: “The illusion that terrorism threatens petroleum facilities in the world is not true.”

– Saudi Arabian oil minister Ali el-Naimi.



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