While it seems like ages ago, it was a just a year or so ago when oil was rising sharply and experts were knocking one another over to be the first to scream for $100, $150 even $200 oil around the corner. The public outcry grew with each rise in gas prices. The crowd in Washington, who has been passing the buck for years rather than address the growing energy crisis, hauled the oil industry executives in front of Congress for the cameras in hopes of the public not realizing they had already kicked the can down the road versus having to actually do something about it.
The great debate a year ago was about Peak Oil. While agreeing with the Peak Oil Theory, yours truly kept saying it was one economic contraction away. Well, I assume you agree we have one heck of a contraction at the moment? If so, it would stand to reason I’m now prepared to fully join the “Peak Oil Believers.”
Every once in awhile someone or group expresses your own beliefs to a tee. This is true when it comes to this article.
Since turning bullish on oil again back in late December, I greatly increased my fondness for it earlier this month by urging much greater exposure to it. Regardless of what it does the next day, week or month, I’m totally convinced I’m in at prices never to be seen again in our lifetime.
The long-term technical picture is very bullish. After free-falling over $100, oil has managed to build a triple bottom base in the 30s, which has given it strength to take out its first key resistance of $50. While it’s still possible for a pullback to its 50-Day M.A. (which is presently in the mid $40s), the resistance levels of $60 and then $75 are likely targets in the next 12 months.
I maintain an extremely positive stance for oil-related investments and would use any sustained weakness to add to and make new purchases.
“Let me tell you something that we Israelis have against Moses. He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil.”
- Golda Meir
Peter; after criticising your political views, let me reiterate my respect for your great market calls lately. I must confess that I have copied your Model Portfolio (to a some extent) and I have profited handsomely in the last month or so. Thanks, keep up the good work!
Joe – You don’t owe an apology. While I like to have fun and play around with posters who have opposing views of mine, I hope you realize they get posted in the first place.If our politicians could learn to differ and work for the common good like I hope we can do here, the world could be a better place. I know in my heart if we get rid of the ignorance and try to understand opposing views, we can make things better.
Having said that, I hope pelosi, reid, Dodd and Frank can find new careers.
peace
peter
Peter,
I tried posting this to your “Markets are Very Interesting” topic, but there’s not comments link for that topic. Anyway, regarding your comment “U.S. Treasuries – No longer able to rally unless the Fed fires silver bullets. What happens when their gun is empty?”… check this article… http://finance.yahoo.com/news/China-challenges-US-global-apf-14774658.html. I read a very small article in the Globe and Mail around the same time that you wrote “Man Your Battlestations” which indicated that China was begining to re-think their level of investment in US Treasuries. I expect it’s a matter of when, not if, that China will want to start divesting itself of their “toxic” assets. However, in the short term this article indicates that China will want to ensure a stable and strong US dollar.
Your thoughts on the China connection and the short, med and long term impact on US Treasuries and US Dollar?
Thanks, Scott
Having said that, I hope pelosi, reid, Dodd and Frank can find new careers.
actually I’d volunteer to fly them for no charge on government business as a service to the people of the USA.
the prophet
In 1975 US oil production peaked around 22 million barrels per day (more than twice what Saudi Arabia currently produces). Now it’s down to 7. Much of the rest of the world’s oil production is in the early stages of a similar decline. We can only hope America wakes up and takes action soon – and I don’t mean invade another oil-rich country.
As individuals, the best thing we can do is conserve – and buy oil stocks.
If,just for arguement sake,an individual had put most of his/her free investment cash into a company,say ndm for example,and only had a couple thousand left to buy one oil stock to capitalize on the iminent rise in crude,what stock would you wise folks recommend?thanx for your help.
“..one economic contraction away”.
Peter, as a O&G Drilling Engineer working in enhanced recovery of depleted wells on 4different continents you have no idea how strongly that statement echoes in the halls of nearly all reservoir engineering departments of nearly all O&G operators everywhere. Only difference of opinion is how close we are to that edge.
I am afraid about the outcome of this, because this one is likely to be a price spike due to actual shortage and not due to monetary inflation.
Hello Peter, perhaps you or one of your readers can suggest ways for a CANADIAN to increase exposure to oil other than through HOU, which doesn’t really track the price of crude, but rather futures contracts. I’m a bit hesitant to go into OIL and then have (US) dollar profits diminished when converting back to the rising CA dollar. Any other Canadian ETF’s out there worth considering? Should we just go with Suncor or Petro Can?
BTW. as a daily reader of your blog, I”m sure I speak for most of us when I tell you how much we appreciate you sharing your knowledge, experience and insights in these most difficult of economic times! God bless, and keep up the good work.
Wolf, et al:
Some considerations for your research might be the following Canadian trusts in addition to COS.un which trade on the NYSE so it makes them easy to trade in the US. They also pay a signifcant monthly payment which will increase as they have in the past as the price of oil increases. They are:
ERF yield = 9.7%
PWE yield = 21.7%
BTE yield = 9.2%
Would be interested in hearing anyone else’s thoughts about these companies.
Susan, thank you for your help. Will have a closer look.
Well the enthusiasm is there for $100 oil, but technically I show strong resistance at 65 to 70. but now, what about the psychology of high oil prices, the oil companies cry that they have to foresake exploration because of low prices, apparently their 29% depletion allowance is not enough to explore, but is just enough for high salaries and bonuses. Tell me big oil exec, what talent does it take to sell oil and gasoline?????????? when oil begins to run low, the only ones allowed to use oil will be the military, and we will have to go electric cars. Hence the need for an alternate fuel for powering those elec cars, as it is now the electric producers could not produce enough to power elec cars if everyone goes elec car. It would seem that the only solution is nuclear, but many are fearful of nuclear, so then what??? Some how, I don’t think oil is going to 100, but if it does maybe uranium will be back in vogue.
Susan, Wolf, et al:
Some of these trusts (especially PWE) have issues – such as too much reliance on nat. gas, as well as recent or impending distribution cuts. Also the charts are still trending down (although there are signs of a bottoming process).
I much prefer SU and COS.un. Charts look better and SU hardly dropped after buying PetroCan. My favorite strategy is to sell puts instead of buying outright – if the option expires worthless, you get a nice commission, and if the stock gets put to you, you get the stock cheap (strike price minus commission). After the inevitable market retrace (a week or two?) would be a great time to deploy this strategy.
I’d stay away from the leveraged oil ETFs – you have to worry about futures contracts and volatility as well as the direction – just too many issues, methinks. For example, the price of crude is now ABOVE where it was on Dec. 1, but HOU & UCO have lost over 50%!!! The only one that seems to track oil reasonably is DXO, but I’d still prefer stocks.
Dear Peter- you have been mentioing that the no-brainer trade is to short us treasuries.request some more insight from you as i agree and feel like building up a pretty large position on this, as it seems to be having the lowest risk:reward compared to any other trades/markets. would you agree. what do you think is the extent of the risk- how high could the treasuries go?
Regarding Cdn O&G Trusts an oustanding company is Cresent Point Energy, CPG.un. They have I believe the largest land holding in the Bakken area of Saskatchewan which is light sweet crude. Their gas exposure is far less than alot of other trusts, Iast I heard they were close to 90% oil. They offer a dividend around 10% and are beginning their conversion from a trust to a dividend paying corporation. They have anounced their intention to keep paying out the same yield so any concerns about this are answered as 2011 approaches.
Another way to play oil is to buy something like SU and write covered calls and puts thus reducing the overall cost of SU. If SU goes up you make money and if it goes down you get more stock at a cheaper price.
Hi Peter:
What is the percentage of the current oil price do you think is associated with the supply interruption risk such as
terrorist attack in Nigeria’s oil fields or war in the middle east?
Your opinions are highly valued.
Thank you.
Godfrey
Stay away from the Canadian O and G Producers. Ive been long HOU since oil was 35 Dollars and NO ONE, anyone had any clue on how to play the crude oil market. I don’t like the HOU that much as I really have not made as much as I would have been if I had been strictly long the futures contract on CRUDE OIL. I ve seen a few OIL and GAS projects come across my desk and many are feasible it is just the money that is required to finance them to fruition. The larger OIL and GAS companies don’t offer the return as the smaller OIL and GAS companies do, you just have to find the right ones out there. As far as peak supply sure, I guess, there never really will be peak demand so the demand will always grow. Technology will have to make inroads or else the price will go up dramatically as it did before. There is only a shortage of oil at price so the rest is scaremongering. Remember, automobiles consume a lot of the worlds’ supply of crude oil, that is key, especially when one considers the dramatic improvements on fuel economy that will come from new laws in the USA.. I am not so sure I would go against the US dollar as it seems to have behaved better than GOLD at least so far, inept governing may change that though. In the meantime, I am looking for consolidation on the commodity side as the world is a much bleaker place that the so called pundits predict. Could be boring for a little while.
[...] when current fundamentals look like such a rise is unjustifiable. This may well be true but like I said in this weekend’s oil commentary, I believe the market has already discounted the present fundamentals and is looking at a much more [...]
If you are looking for a small canadian oil play with lots of upside and volume, check out Opti Canada (OPC.T). They have a 35% stake in a 4.3B dollar oil sands play and their current market cap is 195M due to their high debt and slow start up of production. Word is production is ramping up nicely and if that is the case, than debt servicing will not be an issue as their cost of production is $23+$9 plus interest. So at $50 per BOE, they are already profitable at their current production targets with their partner Nexen(NXY) but if you believe oil will spike to $100 and more as I do, this one has lots of upside (and they could be just bought out)