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
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 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

Commodities
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.




Source: StockCharts.com

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 www.aicatchota.com 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 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