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
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Energy Markets Survive Global Financial Markets Sell off

Commodities / Crude Oil Mar 05, 2007 - 05:40 PM GMT

By: Elliot_H_Gue

The sudden, sharp drop in global equity markets Tuesday has been the subject of almost endless chatter in the financial media this week. But for the most part, this global selloff failed to touch the energy markets.

As of Thursday's close, crude oil and gasoline prices were actually higher for the week. And energy stocks, as measured by the Philadelphia Oil Services Index, were down only around 1.5 percent, a modest move for that index. Energy-related stocks and commodities were among the few green up-arrows in a sea of red on trading screens Tuesday.

Although four days is far too short a period to use as a basis for making grandiose projections, the contrast with the May/June selloff last year is instructive. Check out the chart below for a closer look.


This chart shows a simple ratio--the value of the Philadelphia Oil Services Index divided by the S&P 500. The interpretation is simple: When the line is rising, oil services stocks are outperforming the S&P 500. And, of course, when the line is falling, that means services stocks are falling faster than the market as a whole.

As you can clearly see, the oils actually led the market lower during last year's global hiccup. This week, the exact opposite has been the case. That suggests there's some underlying strength in the energy patch.

I see a few reasons for the energy markets—both commodities and related stocks--to outperform. First, last May most energy commodities and stocks had been locked in an impressive rally for months based on solid earnings news and generally positive fundamentals. Hedge funds, mutual funds and retail investors alike were loaded to the gills with energy-related investments. Therefore, the sector couldn't handle any disappointing news and was subject to violent bouts of profit-taking at the first sign of trouble.

But that's not the case today. Most oil- and gas-related stocks have been trading sideways for months. And, as I pointed out in the January 12 issue of The Energy Letter , futures traders are far less bullish on oil than they were last spring.

More important, however, fundamentals for the energy markets continue to improve. Specifically, on the oil front, one of the most important developments this year has been the disappointing production from countries outside the Organization of the Petroleum Exporting Countries (OPEC) oil cartel.

One of the biggest arguments last year from the oil bears was that non-OPEC oil production was scheduled to grow faster in 2007 that it has since the 1980s. Back in October, the International Energy Agency (IEA) estimated that non-OPEC oil supplies would grow by 1.8 million barrels per day this year over 2006 levels.

This is oil bearish for two reasons. First, economics 101 tells us that when supply grows relative to demand, prices fall. Second and more important, non-OPEC supplies are typically considered more desirable than OPEC supplies because non-OPEC supplies have traditionally carried less political risk.

What's more, being outside the cartel, non-OPEC production isn't affected by OPEC decisions to cut oil quotas and attempt to support oil prices.

But that estimate hasn't quite panned out. During the past four months, a host of non-OPEC oil producers have emerged to revise lower their estimates for the year. Earlier this year, in fact, the IEA had to revise lower its non-OPEC production growth estimate to just 1.45 million barrels per day.

You'll probably see more serious downside revisions to come during the next few months. I remain particularly concerned about production from Mexico. Check out the chart below.

Source: Energy Intelligence Group , Bloomberg

This chart shows Mexico's monthly oil production over the past 11 years. As you can see, production held up nicely around 3.5 million barrels per day in the period from 2003-05. But, last year, Mexican production fell off the proverbial cliff, slipping under 3 million barrels per day late in the year before rebounding slightly in January.

The main culprit for Mexico's decline: the country's giant Cantarell Oil Field, one of the largest and most-prolific oilfields in the world. Cantarell once accounted for more than 2 million barrels per day of Mexico's production.

The problem with Cantarell is that production has peaked and now it's a maturing field. To maintain production from maturing fields requires massive investment, and Mexico just isn't funding that investment as it should.

Mexico's national oil company, Pemex , estimates that Cantarell production will fall off nearly 400,000 per day between 2006 and 2008. But its estimates have proved overly optimistic lately; the falloff in production is likely to be steeper than that.

Estimates are that it would take $10 billion to $12 billion in annual investment on this field to stem the production declines; Mexico currently only spends around $1.5 to $2 billion annually on Cantarell.

Editor's Note: I'd like to extend a special invitation for all readers to join me along with my fellow editors Neil George and Roger Conrad for the 17th Annual Atlanta Investment Conference, April 19-21, at Chota Falls outside Atlanta.

Although I attend several shows and conferences every year, this one has always been truly special. The show is limited to only 175 people, so it's a smaller, more intimate group, affording far more opportunity for interaction between speakers and attendees. And it's hard to imagine a more spectacular setting--right in the heart of the Georgia mountains.

And, most important, all proceeds from the show go to an outstanding charity, the Friends for Autism Foundation. If you'd like to join me at the show, go to or call 678-778-8136 to register. Don't forget to tell them I sent you. I look forward to seeing you there.

By Elliott H. Gue
The Energy Letter

© 2007 Elliott H. Gue

Elliott H. Gue is editor of The Energy Letter , a bi-weekly e-letter as well as editor of The Energy Strategist , a premium bi-weekly newsletter on the energy markets. Mr. Gue is also associate editor for Personal Finance , where he contributes his knowledge of the energy markets.

Mr. Gue has a Master's of Finance degree from the University of London and a Bachelor of Science degree in Economics and Management from the University of London , graduating in the top 3 percent of his class. Mr. Gue was the first American student to ever complete a full degree at that university.

© 2005-2019 - 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