Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Oil and Gas Energy Sector is Not Buy and Hold for Ever

Commodities / Oil Companies Dec 03, 2009 - 03:35 PM GMT

By: The_Energy_Report

Commodities

Best Financial Markets Analysis ArticleInflation is galloping at a 7% pace and a round of one-off corporate profits waiting in the wings are among the near-term sightings in Trader Tracks editor Roger Wiegand's viewfinder. As the veteran prognosticator tells The Energy Report readers in this exclusive interview, while a short-term surplus in oil and natural gas supplies doesn't appear to bode well for expectations of rising prices, the inflationary outlook outweighs the fundamentals, and inflation alone should drive oil up to as high as $100 a barrel.


The Energy Report: Roger, when we last spoke with you at the end of August, you expected the stock market to have a pretty big fall after Labor Day. So, the market didn't collapse . . .what's your view on why it keeps appreciating?

Roger Wiegand: Well, part of it has to do with manipulation and part of it has to do with an awful lot of money that had been on the sidelines. A couple of months ago there was around $8.5 trillion in cash that was not invested. I couldn't believe it. A lot of the money is starting to come back because investors are persuaded things are going to really pick up. Typically, what happens in the normal cycles is that November 1st is the time to buy, after the September-October event sell-off is over. And if you buy on November 1st forward, you usually do pretty well. This year it was delayed, and some of those charts look a little bit sloppy and choppy, and that's what has everybody confused, including me.

TER: Are you saying that you're expecting the markets to go up now that it's after November 1st?

RW: We could go either way. I really believe that. We've have some interesting charts. There's the S&P chart, which has a double top right now; when you see that, it's indicative of a selling point, obviously. But, I don't think there's going to be that much of a selling event. I suspect markets are going to stay propped up. In mid-November we saw a gravitational move from smaller cap stocks into the larger ones. Usually, when investors move into the S&P 100 and they get out of the trading 500, it's because they're looking for security and safety, and they're looking to buy those consumer cyclical stocks, like household goods and toothpaste. There's a heavy load in that regard right now in the market, but I think they're going to get out—managers of the funds will get their bonuses, and they're going out of town with some pretty big money. But I don't think there's going to be very much selling right now. I really don't.

A big part of this has to do with inflation, too. I know a lot of people say, "Well, there's no inflation now; it's all deflation." We disagree; we say that the inflation is now 7% and rising more quickly. Unemployment is a lot higher than people are discussing, and others are saying, "Well, this is a jobless recovery." Well, it may be a jobless situation, but it's certainly no recovery. What's happened here is several of these corporations have laid off so many people and run down their inventory so much that overhead was cut back tremendously and they're showing profits, at least where we are right now. And those profits are going to be a one-off event. They're going to last for maybe a few months but come spring again, we're back to the same old problems. We're overloaded on debt. The bond market in Japan is looking absolutely horrifying right now; it's really scary. The government is selling bonds to pay pensioners and I don't think they've ever been in that position before. The amount of paper out there in Japan relative to GDP and their currency is way beyond where it is in the U.S. And I thought ours was bad!

So, in all likelihood, something is going to snap here pretty soon; it's got to. But it's confusing a lot of people because many good reports are coming in.

TER: If we go back over the past year or two, energy commodities all remain down from the 2008 highs, while many are up from the 2009 lows. Positive economic news is coming out of the U.S. and Europe, even Asia. Given those reports, it looks as if there may be some economic growth, which would be positive for energy investing. But as you point out, those reports are confusing. So in summary, what's your view of the outlook on the energy investment front?

RW: On the fundamentals side for the shorter term—a few months to a year—we're oversupplied on natural gas and crude oil. There are 14 ships with 137 million gallons of oil parked off Malta, in the Mediterranean Sea, because there's nowhere to store the oil. Sunoco (USA) (SUN) shut down a refinery because it was costing them more to run it than they could get out of their refined product, which I can't ever remember happening before.

TER: Even with oil trading at about $80?

RW: That's correct, but there's a lot of competition from other companies in other countries right now. About 35% of the unleaded gasoline used in the U.S. is produced overseas. It's refined in a foreign nation; the oil probably comes from a foreign nation; it's delivered fully refined and ready to use in automobiles and trucks at the U.S. docks. So, there are these foreign competitors.

And then you have problems with currency valuations—a weak dollar versus a costly dollar versus the currencies where these supplies come from. So fundamentally, while we have got too much product, on the other side of the coin we're going to have inflation and are starting to see it now.

Next year, after things really start to roll in the springtime, after we get past the heating oil changeover and go to gasoline in March and April, you're going to see those prices back up at $100. A lot of the reserves will be burned-off at that point. Fundamentally, prices might be back in line where they were previously. In my view, inflation will push the price more than the fundamentals.

TER: But if we're going from under $80 today to back over $100, that's way more than inflation. Isn't that a supply problem?

RW: If supplies get used up, if the economies in Asia hang on, and if the U.S. doesn't get much worse than it is, we should probably get up to $100. This will be very difficult to evaluate because the International Agency for Oil and Energy—the group that measures oil—is forecasting U.S. demand for next year to go down 1%. Supplies being where they are, there will probably be a cap on price. But if you're looking at a situation where inflation steps up considerably, the price could easily go from $80 to $100 based on inflation alone because the dollar is worth less. It's not that the fundamentals are that much different; it's just that the dollar is cheaper. December is historically the worst and weakest month for the U.S. Dollar.

TER: So it's really more devaluation than inflation. And if gas goes up a lot, we'll see another decrease in demand, which is what we saw the summer before last when we had the really high gas prices.

RW: Although 1% doesn't sound like very much, it's a considerable amount and it's a big deal for the U.S. On top of that, some of the supplies we were getting before are curtailed or way down. The primary production loss is the Cantarell Field in Mexico, by the end of this year, it's supposed to be down to only about 10% to 20% of where it was. We're looking at nearly total depletion; they're running it out.

TER: But we're also seeing the deep sea oil drilling off Brazil, and there are supposed to be some really amazing deep water oil reserves in the Gulf of Mexico.

RW: There's one in Brazil's extreme deep water, something like 27,000 feet. It will be very expensive to make that work out and it's going to take time. Brazil has a lot of oil, a massive new discovery field with 100 billion barrels or some ungodly amount. But they don't have the money or the deep water expertise to develop it. It will take 10 years to get it going and they'll have to take on perhaps Royal Dutch Shell plc (NYSE:RDS.A) and Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) . So it's a long-term proposition with short-term ups and downs, which makes their forecasting very difficult.

TER: So, long-term, do you see investing in oil—the commodity, through ETFs, or oil the equities—as a good investment strategy?

RW: I expect to see a few isolated plays in some of the junior stocks. An option trader who knows how to play the cycles, trading the senior stocks, will find some opportunities. The question becomes whether there are easier ways to make money, and quite frankly I think there are. It's going to be harder to make money in energy.

I'm not saying you can't do it. For example, I think I see some opportunity ahead with two major pipelines that are supposed to be coming from the North Slope of Alaska. One is going to the Midwestern U.S. and the other one from the North Slope down to Western Canada and over to the Pacific Ocean supplying China. One of those pipelines is approved and licensed by the State of Alaska, which will get a big cut on the royalties. BP plc (NYSE:BP) and Exxon are going to build their own, but they still need permits from Alaska to build it, and they don't want to pay Alaska any royalties.

TER: What kind of timelines are we looking at for these pipelines?

RW: It's going to be a while yet. We suspect construction on the first one (licensed) might start in five years. Keep in mind our current economic conditions. Also, some pretty smart people tell me there won't be enough steel pipe capacity in the whole world to build them. That's why I found it very interesting when the Chinese were slapped with a 90%-plus tariff by the U.S. I think this is going to change very quickly. I really do, because steel pipe will be in huge demand when construction begins.

TER: You mentioned that there are easier ways to make money. Are you suggesting outside of energy totally or a different sector within energy?

RW: A lot of people say that the best stock to own in the energy industry is Exxon. They say it's the best-managed company and it has the most capital. If you can get the stock on a beaten-down cycle, when there's really nothing wrong with the company or the fundamentals, just that it sold off because it's that the time of year, there are opportunities to make money in the energy business.

In addition, if you're smart and you follow what I call the junior stocks or the baby stocks, there are opportunities within some energy sectors. There will be a way to make money in geothermal, the wind sector and some of the others. The old adage in the gold business is that those who sell the picks and shovels are the ones who make money. There must be counterparts in the green energy field. Exactly what they would be and where they would come from I am not entirely sure. You just go where you see the best trading-buying horsepower.

TER: Do you see these energy juniors as buy-and-hold investments? Or more speculative, where you'd get out when they're going up?

RW: It depends on the stock and the time of year and where they are in the sequence. Some juniors in the energy field have good things coming for them. You really have to figure out what a company is doing, how much money it has, if it's for real, if it has a good reputation—and does it have a chance of success? Watch the news and watch the behavior of the stock. Normally, if I watch the behavior of the stock and use tech analysis, I can get a pretty good handle on what might happen.

You never know for sure, but if a company has good promise and it gets off to a stronger start—let's say they open at 30 cents or 40 cents and then move to 50 cents—that might be a good time to get in. After (Elliott) waves one and two, and here comes wave three; expectations are high and volume is picking up. There's certainly nothing wrong with buying in wave three, which is normally half of the entire move on the upside, at least in the first five wave set. You could earn that 40% or 50%, sell it and go away.

TER: Isn't this market basically one in which you need to trade a couple times a year? In other words, buy, and then when they have news or are in their cyclical upside, take some money off the table, and keep going? Alternative energy sounds perfect for that kind of trading.

RW: It is if you understand it and if you know the companies and their prospects. You also have to understand very clearly how the market views that company. Some of these companies are out on the edge. It's not that they're necessarily bad but they don't have proper exposure. They don't update their news like they ought to. If the market isn't sold on their story or doesn't believe in it, the stock isn't going to move.

TER: Do you have any specific companies that you're following that you can share?

RW: Nevada Geothermal Power Inc. (TSX:NGP) had some good things going before, and based upon the latest things I've heard there's no reason that stock couldn't come back again. That's been one of the better ones within that group.

TER: Will your newsletter be focusing on some of these alternative energies or are you pretty much concentrating on precious metals?

RW: Oh, we look at some energy, too. It has a way of finding its way to the desk. We talk to a lot of people and have many good friends in the business, so these stories pop up periodically.

TER: Any other advice you'd like to share with our readers?

RW: Just be careful and don't be a "buy and hold" forever investor. I'm not saying you have to be a day trader unless you're really into that (which I'm not). But somewhere along the line if you make some money on some of these stocks, you're going to have to take it or, you're bound to give it back.

Roger Wiegand produces the popular Trader Tracks online newsletter, offering investors short-term buy-and-sell recommendations and insights into political and economic factors that drive markets. He has devoted intensive research time to the precious metals, currency, energy and financial markets for more than 17 years. His varied background—a blend of graphics and commercial printing, writing and editing, sales and marketing, consulting and real estate development (from sand and gravel mines to landfills to residential/commercial projects). . .and trading—also shapes the views he shares. "TraderRog" also digests various domestic and international publications for economic, political, monetary and market news and commentary that inform his opinions and analyses. Roger is a regular essay contributor to popular websites addressing the commodities markets and is frequently interviewed on radio in the United States and Canada. Roger is a regular speaker at major precious metals and resource conventions in North America.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

The ENERGY Report is Copyright © 2009 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The ENERGY Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


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


Comments

ilona@israel
04 Dec 09, 10:37
Oil and Gas are expensive

Also the oil markets are not the only one looking up. Alternative fuel stocks are also attracting many investors. Because oil and gas are expensive, Americans are looking for cheaper nonfossil fuel and that demand is boosting the alternative fuel stocks as well.

http://samsonblinded.org/news


Post Comment

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

6 Critical Money Making Rules