June 21st, 2016
As the energy markets await the results of the UK vote on EU membership on Thursday, as I covered last week, the news has picked up another "energy mantra" to repeat endlessly – and as per usual, it’s making a mess of it.
For the past two weeks, analysts and pundits, many without any experience of oil fields or with advising actual oil companies, have been hailing the advent of an “oil balance.” To be sure, as regular readers of Oil & Energy Investor well know, some of us have been focusing on that very same subject for much longer.
But it’s now become the topic du jour, with every "talking head" addressing it.
The problem is that most of those now bandying about the term are still getting it wrong, despite being late to the party. You see, when discussing the "oil balance," either the pundits talk about supply and demand, or they emphasize OPEC versus everybody else.
Each view has something to commend it. Unfortunately, the current oil balance is something quite different altogether…
May 18th, 2016
An open public market requires an even playing field. Some participants may have bigger computers, or a millisecond head start on data.
But at least all investors theoretically have access to the same information and analysis.
The idea is that each participant is able to balance risk and reward to suit their own tastes, using the same data.
Unless, that is, some players are allowed to put a thumb on one side of the scales for their own advantage…
On Monday of this week Goldman Sachs issued an interesting reversal of the firm’s normal bearish stance on oil prices. The investment bank released what most are calling a mildly bullish report on the price of crude.
Now, I normally ignore what Goldman is saying, and so should you. The reasons are simple: (1) their estimates are hardly objective; and (2) they usually miss the boat.
In this case, that’s more true than ever…
May 12th, 2016
Buried in a wave of reports published over the past several weeks is a startling fact that does not augur well for the struggling coal sector.
In fact, this is the most dramatic indication yet that coal is dying – even faster than expected.
Because of a relative newcomer to the U.S. electricity-production game (you already know "who" it is), prices for old stalwarts like coal and even nuclear power are being pushed down.
And if things don’t improve in the next 12-18 months, several additional coal and even nuclear power plants may face closure – and their shareholders will get burned.
Here’s what you need to know to protect yourself…
May 10th, 2016
If you turn on the TV today, you’re likely to see only two kinds of oil price "predictions."
One is the wishful "thinking" of those who claim a further spike in oil prices up to $60 a barrel is coming.
The other is the baseless (and self-serving) "warnings" of another dive to $25 a barrel.
The reality of the oil market lies in the middle – a narrow trading pattern in the $40s, with the floor rising slightly through the end of June.
This price stability is enough to provide some very nice investment opportunities moving forward. The days when oil has to be at $80 for average individual investors to make money are long gone.
So let’s pull back from the smoke and mirrors offered up by the so-called "experts," and look at what’s really happening.
To form realistic expectations about oil prices, there are four factors you need to know.
The second one threatens thousands of jobs here at home…
May 3rd, 2016
As I indicated last week, oil prices are levelling off. The combination of inevitable profit-taking and indications that some OPEC members were once again ramping up production brought the week’s spike to a halt, with both main oil benchmark rates (WTI, set in New York, and Dated Brent, set in London) down slightly.
Nonetheless, both are up well over 20% for the month. WTI closed yesterday at $44.78 while Brent was at $45.81 (at 2:30 p.m. U.S. Eastern time, the close of oil trading in New York) – already above my call for a WTI pricing floor of $42-$45 a barrel by mid-June.
And while we’re now looking at a rather narrow price range in advance of the next meeting of global producers (to be held in early June in Moscow), a much bigger change is already rocking oil markets – whether a production freeze is agreed to next month or not.
You see, there’s a new “oil equilibrium” forming… and money is already moving in.
Now, I’m not talking about supply and demand here. In fact, that has little relevance today.
Instead, I’m talking about a completely new kind of energy investment – one that will change the industry as you know it…
April 19th, 2016
The failure of the world’s main oil exporters to reach an agreement to freeze production on Sunday in Doha resulted in a dive in oil prices…
For a few hours.
West Texas Intermediate (WTI, the benchmark used in New York) closed down 1.4% yesterday, while Dated Brent (the globally used equivalent set in London) gave up less than 0.8%.
And as of 11:00 a.m. Eastern today, WTI is up 3.5% (to over $41 a barrel) and Brent has gained over 3% (to more than $44).
If ever there was a “non-event,” the supposed “fallout” from this past weekend’s meetings certainly appears to be one of them.
In fact, this is what you’d expect from a successful Doha meeting, not from a failure.
Even so, some pundits are now saying that Saudi Arabia, Iran, and others will be increasing production after Doha.
They won’t – and the market knows this, as oil prices are rising, not falling.
March 17th, 2015
It’s getting to be crunch time in the negotiations between the West and Iran over Tehran’s nuclear program.
Despite an ill-advised attempt by U.S. Senators to scuttle the talks, it’s clear the negotiations in Geneva will continue.
Now, TV pundits have taken to the airwaves suggesting that an agreement would flood the market with Iranian oil.
Combined with production surpluses in the U.S. and elsewhere, the “instant” prognosticators are pushing their Armageddon pricing scenario again, putting additional pressure on oil prices.
Meanwhile, those playing the new “Iranian card” are shorting oil even further.
It’s just the latest example of a self-fulfilling prophecy.
It works like this…
Chicken Little of “The Sky is Falling Brokerage” hits the airwaves warning of a collapse in prices, only to earn huge off-camera profits based on what he just said.
Meanwhile, average investors are left holding the bag as share prices fall.
There’s only one problem with all of this instant “analysis” and it’s a big one…
November 18th, 2014
The U.S.-Chinese accord on climate control may have grabbed the most headlines yesterday, but the trade pact signed between China and Australia is likely to have a much bigger impact.
In the shadows of the G20 meeting in Brisbane, Canberra inked a free trade agreement with Beijing that will see tariffs on all resources and energy products removed within two years.
By agreeing to the deal, Australia will now reap the benefits of zero tariffs on major exports like iron ore, gold, crude oil, and liquefied natural gas (LNG).
But that’s not the only upside “Down Under.”
This landmark agreement could also have a big impact on a tiny Australian oil stock…
January 30th, 2014
Something happened this morning that reminded me of a few events from the recent past. So today seems a like good time to tell you a story.
It’s about Dr. Fatih Birol. I have known him for decades.
As Chief Economist of the International Energy Agency (IEA) in Paris, his views have had some impact in the shaping of worldwide attitudes on energy.
He is also hardly reticent in letting you know exactly what those views are, whether they reflect prevailing opinion or not – sometimes stealing your thunder in the process.
Several years ago, I learned that first hand…
January 28th, 2014
It was quickly becoming OPEC’s worst nightmare. By the mid-1980s, oil prices had begun to collapse.
What’s more, renegade cartel members were selling more oil than their monthly quotas allowed, which merely made a bad situation even worse.
Ordinarily, that’s was a point when the Saudis usually would step in and cut their own exports.
But by then, the pricing situation had become untenable. Instead, the Saudis embarked on a bold new strategy.
First, they opened up their own spigots and flooded the market with crude. This taught those recalcitrant OPEC members a big lesson about lost revenues.
Second, they also introduced a “netback” pricing strategy that proved to be far more important – both for them and today’s energy investors.
This new strategy considered the entire pricing sequence, using refinery margins (the difference in cost between processing and prices on the wholesale level) as a measure of prices upstream and downstream.
Now, twenty-eight years later, the same netback strategy has made a comeback that has handed us a clear path to profits – even during periods of high volatility.
Here’s how this strategy works…
January 21st, 2014
As every savvy investor knows, multiples are one of the best yardsticks when it comes to finding undervalued stocks.
More often than not, that involves a hard look at the multiple of a company’s earnings to determine whether or not a stock is fairly valued.
January 16th, 2014
Today, I want to talk about to you about a new investment opportunity.
It’s in energy security, and I have two money-making ways for you to play this trend.
It stems from the accelerating need to protect the production, transport, and distribution of our newfound wealth in oil and gas.
This point was hammered home yesterday with the release of Oil Security 2025: U.S. National Security Policy in an Era of Domestic Oil Abundance.
The 108-page report is the inaugural effort of the Commission on Energy and Geopolitics. Admiral Dennis Blair, former Director of National Intelligence and Commander in Chief, U.S. Pacific Command; and General Michael W. Hagee, 33rd Commandant of the U.S. Marine Corps, served as co-chairs.
Not surprisingly, the report reflects matters I have discussed before.
They include: the rise of security issues surrounding new domestic oil finds, increasing geopolitical tensions and the changes in the energy balance, both from a supply and a demand perspective.
In this case, the transition of supply from conventional to unconventional sources, combined with a new emphasis on domestic U.S. production, certainly has both global and security considerations.
But it’s the changes on the demand side that are even more striking…