Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Three Triggers for Higher Crude Oil Prices

Commodities / Crude Oil Aug 28, 2009 - 12:46 PM GMT

By: Uncommon_Wisdom

Commodities

Best Financial Markets Analysis ArticleSean Brodrick writes: Oil prices recently came close to $75 a barrel before heading south again. Enjoy the cheap oil while you can. The odds are you’ll be paying higher oil prices by the end of the year.

The good news is there are some easy ways to profit from it. First, let’s look at the forces that could drive oil higher …


Force #1 — The Crisis at Our Border. Mexico’s oil production is on the slippery slope of doom. Pemex, Mexico’s national oil company, said that it now expects to produce 2.6 million barrels a day this year, a big drop from earlier estimates of 2.8 million barrels a day made just months ago.

Pemex’s total oil output fell 7.8 percent in July. Production from its supergiant oil field Cantarell dropped by 41 percent year-over-year! And Mexico’s exports to the United States dropped 13.4 percent year over year to 1.07 million barrels a day. That’s down one-third from July 2007’s export levels.

I’ll say that again — in just two years, Mexico’s oil exports to the United States have dropped by one-third.

What’s more, Pemex consistently misses its production targets and underestimates the amount that its production will decline. And it doesn’t have much money for oil-field development, so the problem is probably going to get worse, not better.

This is a brewing crisis for the United States, which uses a lot of Mexican oil. Mexico is our No. 3 source of imported oil.

Top 5 Sources of U.S. Petroleum Imports, 2008

The big hit is from Cantarell. Originally one of the largest oil fields in the world, it produced 1.86 million barrels of crude a day as recently as 2006. Fast-forward, and it is now pumping 590,000 barrels per day. Its production has dropped by 20 percent in just seven months. And some experts say Cantarell could be producing less than 500,000 barrels per day by the end of this year!

Mexico’s production shortfall could impact all U.S. drivers. And that’s not all. Since Mexico’s oil revenues pay for that country’s social services, a steep decline in Mexican oil production could trigger a humanitarian catastrophe.

The flow of illegal immigrants across the U.S./Mexican border has slowed due to the recession; if Mexican oil revenue falls off a cliff, that flow could swell into a flood.

Force #2 — China’s Oil Thirst Is Increasing. China is shrugging off the global recession, and its oil use is revving up with a vengeance. In July, China’s implied oil demand rose 3.5 percent from a year earlier in its fourth consecutive rise as refiners ramped up production. Meanwhile, China’s crude oil imports raced to a record in July, up 42 percent from last year.

China has overtaken Japan as the world’s No. 2 buyer of crude oil, importing 4.62 million barrels a day in July, up 14 percent from June.

Longer-term, China’s oil demand has grown from 4.8 million barrels of oil a day in 2000 to 8 million barrels today, a whopping 67 percent growth.

Driving this growth is China’s booming auto sales. In July, China’s auto sales jumped an astonishing 70 percent higher than a year earlier. China’s automobile market may post higher sales than the U.S. auto market for a full year for the first time ever.

China’s not the only one. India’s car sales were up 31 percent year over year. In fact, this may be the first year that emerging markets (combined) use more oil than the United States.

To feed this tremendous growth, both China and India are looking for oil around the world. China in particular is using its $2.3 trillion in cash and foreign reserves to make deals left and right, with countries, including Russia, Angola, Iraq, Brazil and even Cuba. This essentially locks in that production for China and locks it out for the United States.

Force #3. U.S. gasoline consumption is roaring back. Despite a severe recession, the United States still imports 9.19 million barrels of oil a day.

Our total liquid fuel use (including gasoline, jet fuel and distillates such as diesel and heating oil) is down year over year — 18.7 million barrels a day in 2009 from 19.5 million barrels a day in 2008 — but it’s going back up again. We should be using 19 million barrels per day in 2010, according to the Energy Information Administration.

U.S. Liquid Fuels Consumption Growth

What about all those gas hogs that got replaced in the “Cash for Clunkers” program? The good news is nearly 700,000 clunkers were traded in, and the Department of Transportation reported that the average fuel efficiency of trade-ins was 15.8 mpg, compared to 24.9 mpg for the new cars purchased to replace them. That’s a 61 percent fuel efficiency improvement.

The bad news is the program probably got only about 4 percent of America’s fuel-wasting gas hogs off the road, according to some estimates.

Meanwhile, the number of oil drilling rigs here in the United States is dropping fast. Look at this table from Baker Hughes showing the number of active drill rigs …

Area Last Count Count Change from Last Year Date of Last Year’s Count
U.S. Aug. 21, 09 985 -1013 from Aug. 22, 08
Canada Aug. 21, 09 164 -293 from Aug. 22 08
International July 09 974 -118 July 08

The United States has managed to shed more than 1,400 working drill rigs over the course of a year. Is this laying the groundwork for another price surge? Bet on it. A whopping 76 percent of our domestic oil production is used for transportation.

It sure seems like the United States didn’t learn its lesson from last year’s high gasoline prices. That means we’re probably going to have to learn it all over again, the hard way.

3 Ways You Can Profit

Let me give you three ideas on how to make the most of the coming boom in oil prices …

Pick #1 for the Crisis in Mexico: Buy Petrobras (PBR). Brazil’s national oil company is finding plenty of oil. It has discovered three “megafields” in three years — Tupi in 2007, Jupiter in 2008 and Iguacu in 2009.

Also, Petrobras’ long-term business plan calls for investing $174 billion over the next five years in developing its resources. The company says it has $30 billion in hand, including $10 billion from China’s Sinopec in exchange for 200,000 barrels of oil a day for 10 years.

Finally, Pemex has already approached Petrobras about a deepwater joint venture to find more oil in Mexican waters. So that’s another way Petrobras could profit from this crisis.

Pick #2 for the Oil Boom in China: Buy Marathon Oil (MRO). This oil explorer and developer recently made a deal with China on an oil exploration block in Angola in Africa.

Marathon operates all over the world, and so has the potential for more deals with China. Plus, Marathon trades at a discount to the industry and the S&P 500 on price-to-earnings, price-to-sales, price-to-book and price-to-cash-flow ratio.

Pick #3 for America’s Oil Squeeze: Buy the iShares Dow Jones US Oil & Gas Exploration Index (IEO). Full disclosure: This is an exchange-traded fund I’ve already recommended to my Red-Hot Commodity ETFs subscribers. But I think it’s the right place to be in this market.

U.S. oil exploration is obviously at a low point, and this fund is packed with companies that will make the most of it as money flows into this industry. Its holdings include Occidental Petroleum, Apache Corporation, Anadarko Petroleum, and more.

Do your own due diligence on any of these recommendations. And remember, especially if you’re trading on your own, have your exit point picked BEFORE you enter. That goes double in this fast and furious market.

Yours for trading profits,

Sean

Sean Brodrick writes:

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

Uncommon Wisdom Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules