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Sabotaged Pipeline Threatens Oil Supplies
Posted by Patrick O'Connor on 8/7/08 10:38 am
The Baku-Tbilisi-Ceyhan (BTC) pipeline that transports 1% of the world’s oil was damaged by Kurdish separatists who claimed responsibility. Watch Video. Oil prices rose more than $2 at one point during the day.
The BTC pipeline connects Baku, the capital of Azerbaijan; Tbilisi, the capital of Georgia; and Ceyhan, a port on the southeastern Mediterranean coast of Turkey. It is the second longest pipeline in the world, covering 1,099 miles.
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Bureau of Land Management to Sell Oil Leases in National Petroleum Reserve of Alaska
Posted by Louis Navellier on 7/28/08 12:47 pm
The BLM will sell oil leases for more than 2.6 million acres in the NPR-A this October. The NPR-A is estimated to hold about 8.4 billion barrels of recoverable crude oil. As a result, I am starting to build a position in a stock I think will win some of these leases, but I can’t mention the name because it’s not a top-10 holding in one of my portfolios (SEC rule). However, you can read more about this lease sale and look at some of the oil companies that are already active in the reserve by visiting this article.
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U.S. Stocks Get a Boost from $5 Drop in Oil Prices
Posted by Patrick O'Connor on 7/16/08 10:59 am
U.S. crude oil inventory data for the week ending July 11 surprised the market when reports indicated that supply jumped by 3 million barrels instead of dropping the 2.2 million barrels expected by analysts. The better-than-expected result was due to total U.S. petroleum demand falling. Equally encouraging, gasoline inventories jumped 2.4 million barrels, much better than expectations for a slight decline. Read More.
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Montana and North Dakota Have 3B to 4.3B Barrels of Oil
Posted by Louis Navellier on 6/30/08 1:16 pm
The Bakken Formation has received glowing press recently. Some sources are calling it the most significant opportunity for U.S. energy independence. Is this also a significant investment opportunity?
Answer: Yes. This is a big deal. The oil field is found in Montana and North Dakota and it contains light, sweet crude oil that is trapped in a shale rock formation only about 150 feet wide, so horizontal drilling is necessary to exploit this resource. According to the U.S. Geological Survey (USGS), there are 3 to 4.3 billion barrels of recoverable crude oil in the Bakken Formation, which makes it the largest land-based oil field in the lower 48 states. This will naturally help oil service companies and is very exciting for U.S. energy independence.
There are five publicly traded companies with interests in the Bakken Formation, but only one passed my stringent stock selection process: XTO Energy. (XTO); 1-yr Chart; Profile. XTO is a top-10 holding in our Power Dividend portfolio.
I should also add that there are also some small Vancouver-based oil companies trying to exploit the Bakken Formation by drilling or acquiring leases in Saskatchewan, Canada. I would rather not mention these companies, since they are saying the USGS found 400 billion barrels, which is a blatant lie and 100 times what the USGS has actually said. Always be careful of small Canadian oil companies without proven reserves and poor financials.
Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.
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Politicians Make a Move Against Oil Speculators
Posted by Patrick O'Connor on 6/27/08 9:27 am
The U.S. House of Representatives approved a bill yesterday that targets oil speculators. The bill passed by a 402-19 vote. If the measure passes the Senate and gets signed by the president, it would require the Commodity Futures Trading Commission to consider using limits on how much a speculator can trade in oil contracts and raise margin requirements.
U.S. News & World Report
6 Myths About Oil Speculators
By Rick Newman
So now we know who's really responsible for $4 gas. Finger-pointers from Washington, the International Monetary Fund, and even Saudi Arabia no longer seem to buy the idea that the demand for oil around the world is simply growing faster than the supply, driving prices to record highs close to $140 per barrel. There must be a more nefarious reason, it seems. So now entering this drama is a villain everybody can hate: The Evil Speculator.
At recent congressional hearings, politicians and energy experts argued that speculators have artificially added $30 or more to the cost of a barrel of oil, turned oil trading into a global poker game, and doubled the price of gasoline practically overnight.
But who are these party crashers? Where did they come from? How are they doing this? And who can stop them? We'd all like to see a superhero swoop in and smite the speculators, saving Gotham from the peril of $4 gas. The only problem is, speculators aren't quite the bogeymen that politicians want us to think--and they even play an important role in the oil markets and the global economy. Some major misconceptions: Read More.
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Downgrades and Oil Price Surge Hammer Stocks
Posted by Patrick O'Connor on 6/26/08 12:19 pm
Multiple downgrades from Goldman Sachs in the automobile and brokerage sectors and another run-up in oil prices sank stocks today to new 2008 lows.
Goldman Sachs analysts cut earnings estimates for Citigroup and Merrill Lynch, downgraded U.S. brokerages to “neutral” from “attractive,” and cut its rating on General Motors to “sell.”
As a result, Citigroup shares traded down to 1998 levels, Merrill Lynch plumbed an area not seen since 2002, and GM cratered to prices not visited since 1955! See chart.
General Motors ad from 1955
Meanwhile, comments from OPEC’s president and Libya’s national oil company pushed the price of crude above $140 for the first time ever. OPEC’s president said he expects to see oil trade in the $150-$170 range this summer, and the head of Libya’s national oil company said it may cut production because oil supplies are ample.
The potent brew of downgrades and higher oil prices forced the Dow below 11,500 for the first time since September 2006. See chart.
Unfortunately, the weakness accelerated into the close today, and the overall trading volume was not excessive. Therefore, the market’s decline could deepen near-term. We’ll need to see signs of capitulation (high volume on the downside, then a massive intra-day reversal) before we call a bottom.
In times like these, investors tend to sell everything, even their best performing stocks. As such, be ready for buying opportunities.
One of our top performing products this year has been our Power Dividend portfolio. It’s a total-return strategy that could have an advantage over typical long-only strategies, due to the opportunity created by Congress when it lowered the federal tax rate on dividends to 15%. Ask your advisor if Power Dividend will blend well with your current portfolio. If you don’t have an advisor, feel free to contact us.
FEDERAL TAX ADVICE DISCLAIMER As required by U. S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
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Global Energy Summit in Saudi Arabia Disappoints
Posted by Patrick O'Connor on 6/23/08 10:51 am
As expected, the energy summit in Saudi Arabia on Sunday failed to solve the issues that are driving oil prices higher. Saudi Arabia announced a production increase of 200,000 barrels per day, but the market has already absorbed that amount. As a result, crude prices headed higher today.
The meeting of energy ministers from 35 nations accomplished very little. Instead, everyone defended their already-established opinions about why oil prices have spiked so dramatically: Oil-consuming nations said insufficient supply is driving prices higher, producing nations said speculators are pushing up prices, and everyone agreed that growing demand in emerging economies is a major factor.
“It is not clear that anything you heard today is going to reverse sentiment. One thing is clear: You are not going to wake up tomorrow and find that oil prices have dropped 20 or 30 dollars,” said Raad Alkadidri, an energy analyst at PFC Energy, quoted in an article in The New York Times.
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Rising Oil Prices Series: Part VI
Posted by Patrick O'Connor on 6/19/08 1:51 pm
This post contains Navellier top-ten energy stock holdings.
This article is the sixth and final installment of a multi-part series about rising oil prices. In this column, we’ll review the issue and discuss the outlook for oil prices. Read parts I, II, III, IV, and V.
Oil, oil, toil and trouble
When oil prices skyrocket as they have—from $60 a barrel in 2007 to more than $130 a barrel today, recording highs on nine of the 22 trading days in May 2008—it’s natural to assume that something or someone must have caused it, and to look for a culprit.
As a result, consumers and industry watchdogs have started taking names. Some say the world is simply running out of crude oil. Some blame developing countries such as China for increasing demand. Others say the big oil companies are taking advantage of high demand to manipulate prices. For a while, the weak U.S. dollar was targeted. Most recently, speculators have been on the hot seat.
All of these factors are likely playing a part in rising oil prices. Demand is clearly growing. It’s no surprise that oil companies want to increase their profits; they are, after all, in the business of making money. And, as the value of the dollar has fallen and inflation has risen, speculators have certainly flooded the market with buy and sell orders.
We may not know exactly why oil prices are rising, but we know they are, and they will probably continue to do so. You’d think that for $130 a barrel, oil companies would want to explore and produce more, but their caution is understandable. Oil prices can swing wildly—just a decade ago they were less than $10 a barrel—and no one wants to make an investment that won’t pay off. After all, the capital costs of getting oil out of the ground have increased drastically in recent years, partly because of rising steel prices. In February 2007, ExxonMobil and Qatar Petroleum cancelled plans for a $7 billion plant that would convert methane into synthetic diesel in Qatar—in part because of rising steel and aggregate rock prices and cement shortages.
So, what will happen to the stock market if oil prices continue to rise? Oil prices have increased more than 450% in the past five years, rising from around $25 a barrel in 2003 to a high of $139.89 recently. If they increase by the same amount in the next five years, they’d exceed $700 a barrel in 2013. That would make oil unavailable to much of the world, and as a result, significantly decrease economic activity. And that would almost certainly lead to extreme stagflation—an inflationary period accompanied by rising unemployment and lack of growth in consumer demand and business activity. Almost certainly, the markets would not perform well at such a time.
But much could happen to change things. Higher crude oil prices could dampen demand or drive increased supply, which could stabilize or reduce the price of oil. For example, the profligate use of oil in the U.S. automobile sector could be reduced by the production and use of more energy-efficient cars. But many industry experts consider this unlikely, at least on the demand side. The benefits of converting to energy-efficient cars may be overstated: while some hybrid cars reportedly get up to 50 miles per gallon, others get as low as 20. And even if hybrid cars could change the world’s dependence on oil, it would take 17 years to completely refresh the U.S. automotive fleet, according to the Hirsch Report.
Additionally, we have to consider the possibility that oil prices just aren’t affecting the global economy the way we’d expect them to. An old rule of thumb says that every 10 percent rise in crude oil prices will lead to a 1 percent drop in global growth—but that’s not happening today. The National Institute of Economic and Social Research—an independent economic research organization in the United Kingdom—says U.S. economic growth is only 0.7 percent less than it would have been without the past year’s rise in oil prices. Growth in Europe and Japan is only 0.5 percent less, and growth in the United Kingdom is only 0.25 percent less. Why? Because economies are less sensitive to oil prices than they used to be, according to the Institute. The amount of oil, coal, and gas needed to produce an increase in gross domestic product has halved since the 1970s, thanks to greater energy efficiency and the shift away from heavy manufacturing. Plus, labor markets have become more flexible, with workers accepting temporary reductions in real wages when energy prices rise instead of demanding increased compensation.
So, how high will crude oil prices go? No one knows for sure, but in a February 2008 report, Deutsche Bank predicted that they may peak at around $150 a barrel. Daniel Yergin, president of Cambridge Energy Research Associates, also thinks $150 is likely. That, suggested Deutsche Bank, may be the “magic” price that destroys demand to the point that we could live with a world supply of 100 million barrels per day, which, as noted earlier in this series, is what many industry executives view as the maximum supply available.
In any case, we’re bullish on oil stocks in the near-to-medium term. We don’t think the oil bubble will burst until there’s more evidence that both demand and supply are responding to higher prices. That becomes more likely as prices rise, but it will almost certainly take time, partly because much of the world’s oil is purchased on long-term contracts, and thus does not reflect current market prices.
Moreover, there are a number of other industries that could be positively impacted by today’s rising oil prices as well. For example, new models of hybrid cars use lithium-ion batteries that are lighter and more powerful than the old batteries. We read one estimate that a Toyota Prius with a lithium-ion battery can get 80 miles per gallon of gasoline. So, one might consider investing in companies that make lithium or lithium-ion batteries.
Navellier Top-Ten Energy Stock Holdings
Vantage Portfolio
Petroleo Brasileiro (PBR); 1-yr Chart; Profile
Sasol Ltd. (SSL); 1-yr Chart; Profile
Encana Corp. (ECA); 1-yr Chart; Profile
Cameron Intl (CAM); 1-yr Chart; Profile
Power Dividend Portfolio
Noble Energy Inc. (NBL); 1-yr Chart; Profile
Devon Energy Corp. (DVN); 1-yr Chart; Profile
XTO Energy Inc. (XTO); 1-yr Chart; Profile
All Cap Core Portfolio
Occidental Petroleum Corp. (OXY); 1-yr Chart; Profile
We want to hear your thoughts! Comment to this post by clicking the ‘comments’ link below.
Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. For a list of recommendations made by Navellier & Associates, Inc., for the preceding twelve months, please contact Tim Hope at (775) 785-9416.
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White House Sending Energy Secretary to Saudi Arabia on Sunday for Oil Meeting
Posted by Louis Navellier on 6/18/08 10:47 am
This meeting in Saudi Arabia on Sunday is a very positive development. I suspect that crude oil prices will remain high leading up to the meeting, especially since oil inventories are continuing to fall. Mexico’s production problem is the latest supply issue. The IEA is seeking an immediate increase in oil production at the meeting, but one White House spokesman said such an announcement was unlikely. Nonetheless, I wouldn’t be surprised if Monday will be a volatile day for crude prices.
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Should Congress Allow More Offshore Oil Exploration?
Posted by Patrick O'Connor on 6/18/08 9:53 am
Today President Bush advised Congress to lift certain bans on offshore oil exploration in existence since 1981, and accused Democrats of blocking his energy initiatives. Bush also blamed Democrats for record-high gasoline prices.
House Speaker Nancy Pelosi was quick to retort, saying his remarks were “another page from [an]… energy policy that was literally written by the oil industry—give away more public resources.”
Senator Barack Obama said, “This is not something that’s going to give consumers short-term relief and it is not a long-term solution to our problems with fossil fuels generally and oil in particular.”
Tell us what you think about this topic. Should Congress allow more exploration? Would doing so lower gasoline prices? Click the ‘Comments’ link below and get involved in the discussion.
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