Gasoline prices are finally headed lower at the pumps, but it’s happening slowly. It always seems prices at the pumps rise much faster when oil prices increase, but they move much slower when oil prices decline. I guess that’s big oil for you.
The average price of regular gas across the nation is around $3.55 a gallon. That’s down from the more than $4.00 a gallon we witnessed in July 2008 and again in May 2011.
Lower gas prices translate into more money in your wallet to spend on other goods and services. This is good for the country’s economic growth.
As a consumer, while we are experiencing lower gas prices at this juncture, I’d suggest you enjoy it while you can, as oil companies will look for any excuse to drive oil prices higher—and gas prices will follow.
As an investor, however, you need to pay attention to the bigger picture.
Oil prices have been steadily declining to around $91.00 a barrel from the more than $100.00 a barrel witnessed not long ago.
Chart courtesy of www.StockCharts.com
Some calm to the situation in Gaza and Israel, along with a current truce to the fighting in Ukraine has contributed to the decline in oil prices. Geopolitical events can have a huge impact on the price of oil.
The problem that I see here is that the situation in either region could boil over at any moment, possibly launching gasoline and oil prices sky-high. But my biggest concern is not the events happening in Ukraine or Gaza; rather, the biggest question mark lies in the volatile regions of Syria and Iraq, … Read More
Technology and growth stocks may not be looking that good at this time, but the same cannot be said for the oil sector, which is an investment opportunity.
We are seeing significant profits emerge in the oil patch, as the price of West Texas Intermediate (WTI) is holding above $100.00 per barrel.
The presence of the higher oil prices is driving energy companies, from the drillers to producers, both upstream and downstream, to report strong results.
America has become a major producer of oil, which is lessening the country’s dependence on oil from the oil cartel in the Middle East, the Organization of Petroleum Exporting Countries (OPEC).
As many of you know, the trigger that has driven up the domestic production of oil has not been the opening of protected land in Alaska or the incoming flow of friendly oil from the Tar Sands in Canada, but the aggressive efforts to develop shale oil via fracking technology, which has become an investment opportunity.
The impact of shale oil on OPEC was made evident in a report produced by the cartel in 2013 that predicts the decline in its market share due to the influx of shale oil. (Source: Lawler, A., “OPEC to lose market share to shale oil in 2014,” Reuters, July 10, 2013, last accessed May 29, 2014.) This is making shale plays an investment opportunity.
Make no mistake about it: the growth of new oil drilling technologies, such as the horizontal drilling incorporated in the fracking process, will only expand as an investment opportunity. North Dakota is now the Mecca of shale oil and is the second-largest producer … Read More
I just went to fill up my gas-guzzling SUV, and what I paid was one of the highest bills ever. With oil prices managing to hold around $100.00 a barrel for West Texas Intermediate (WTI), the price of gasoline at the pumps continues to be absolutely insane—not as expensive as Europe and parts of Asia, but nonetheless a major hit to your wallet.
Yet while consumers and companies pay the brunt of the high oil prices, the fat cats at the oil companies are quickly adding to their coffers and making tons of oil profits.
The only positive news here is that the country has reduced its dependence on Middle East oil and that, folks, really is a good thing. We don’t want to be held hostage by OPEC oil.
Of course, as many of my astute readers know, the major reason why we are becoming less dependent on foreign oil (excluding oil from the Canadian tar sands), is the rapidly growing extraction of domestic shale oil from the hotbeds in North Dakota and Montana.
In 2012, shale gas represented 39% of total natural gas production in the United States, according to the U.S. Energy Information Administration (EIA). Canada was second at 15%. These numbers are estimated to grow even bigger. The U.S. has the best technology for squeezing oil out from between rocks in the shale deposits, and it will only improve as we move forward.
The rising production of shale oil has made the price lower in comparison to the more expensive and heavier Brent Crude oil at around $109.00 per barrel.
Take a look at the chart … Read More
Thanks to a number of different factors, airline sector stocks have been on a tear. And thanks to an inverse relationship with the price of oil, strengthening consumer sentiment, the expected increase in business travel, and the (eventual) arrival of spring and summer, the airline sector looks poised for further gains.
Oil prices experienced sharp gains between 2007 and mid-2008, subsequently tanking in step with the stock market and bottoming in early 2009. Since 2010, oil prices have risen in the shadows of the sputtering U.S. economy—neither soaring nor really pulling back.
That said, oil futures slid last week immediately after weekly data came out that showed U.S. crude oil supplies were up more than forecast. Analysts had expected crude oil inventories to climb from 1.4 million barrels in the last week of February to 2.1 million barrels for the week ended March 7. Instead, oil inventories surged to 6.2 million barrels. (Source: “Summary of Weekly Petroleum Data for the Week Ending March 7, 2014,” U.S. Energy Information Administration web site, March 12, 2014.)
Oil prices are also down after the U.S. said it would hold its first test sale of crude oil from its emergency stockpile since 1990. While the government insists its modest offering of 5.0 million barrels of crude is a result of the dramatic increase in domestic crude oil production…others think it might be a subtle nod to Russia. The markets don’t seem to care either way. Oil prices are down 6.5% since the beginning of March, trading near $98.00 per barrel.
Now granted, the price of crude oil will rebound. That said, the airline sector … Read More
The price of light crude oil recently broke through the $100.00-per-barrel mark for the first time this year. Oil prices had been on the decline since early September 2013 when they touched a high of $110.00 per barrel. By early January, oil prices had dropped more than 17%, hovering around $92.00 per barrel.
Thanks to the frigid weather blanketing much of the U.S. and improvements in the country’s oil infrastructure, oil prices have since climbed more than nine percent.
In late January, a new oil pipeline opened that connects Alberta, Canada to the Gulf Coast refineries and export terminals. The pipeline is made up of a combination of the original Keystone pipeline running from Alberta to Cushing, Oklahoma, where it then connects with the new Keystone XL South pipeline, which carries on to Texas. (Source: Philbin, B., “Oil Pipeline Opens, Prices Surge,” Wall Street Journal, January 26, 2014.)
Cushing is the pricing point for the New York Mercantile Exchange’s West Texas Intermediate (WTI) contract, North America’s benchmark oil price. It is also America’s biggest oil storage hub. The southern extension of the contentious Keystone XL pipeline is expected to help eliminate the glut of oil in Cushing that has artificially skewed U.S. oil prices for three years, keeping it trading well below crude oil prices based on the European Brent benchmark.
Interestingly, the abundance of oil and increased flow of crude oil from Cushing to the Gulf Coast does not translate into a drop in oil prices. That’s because some of the so-called “extra” oil making its way to the Gulf Coast is being processed into fuels and shipped to … Read More
Not too long ago, I wrote about an economic slowdown in the Canadian economy and how it could take the value of the Canadian dollar even lower. (Read “How American Investors Can Profit from the Canadian Economy’s Demise.”) By no surprise, the Canadian dollar (also referred to as the “loonie”) looks to be in a freefall. Take a look at the following chart.
The Canadian dollar is currently trading at its lowest level since September of 2009. Since the beginning of the year, the loonie has declined more than four percent compared to other major global currencies.
Considering all that is currently happening, can the Canadian dollar go down any further?
Chart courtesy of www.StockCharts.com
Simply put, yes, the Canadian dollar may still see some more downside. After the U.S. economy showed a significant amount of stress during the financial crisis, investors flocked to buy the Canadian currency. This may not be the case anymore.
Since the last time I wrote on this topic, some more information on how the Canadian economy is doing has been released. This new information reaffirms my suspicions. It seems the economic slowdown in the Canadian economy is gaining some momentum; even the central bank of Canada looks slightly worried. This could be very bearish for the Canadian dollar.
First of all, wholesale sales in Canada in the month of November remained unchanged from the previous month. Out of the 10 provinces in the country, only four reported an increase in their wholesale sales. (Source: “Wholesale trade, November 2013,” Statistics Canada web site, January 21, 2014.) Wholesale sales can provide an idea about the retail … Read More
Our neighbor to the north is facing some headwinds. In Canada, there are troubles developing that may drive the country toward an economic slowdown. In 2008, the ripple effects from the U.S. economy into the global economy caused an economic slowdown in many countries. The Canadian economy was one of the few nations that didn’t suffer a major hit; it was able to stand strong.
Now, Canada may not be able to stay on such strong footing, as it faces a possibly severe economic slowdown due to a few phenomena that are starting to line up to create a perfect storm.
First of all, the housing market in the Canadian economy is becoming much overvalued. According to Deutsche Bank, the Canadian housing market is the most overvalued housing market in the global economy. Looking at the value of the Canadian housing market as a ratio of home prices and rent, this market is overvalued by 88%. (Source: Babad, M., “Canada’s housing market most overvalued in the world, Deutsche Bank says,” The Globe and Mail, December 11, 2013.)
As we move through the beginning of 2014, the Canadian housing market is showing signs of a slowdown. Building permits, one of the early indicators of which direction the housing market is headed, saw a 6.7% decline month-over-month in November. (Source: “Building permits, November 2013,” Statistics Canada web site, last accessed January 9, 2014.) If the housing market soon faces troubles and prices decline, a major economic slowdown could follow.
Secondly, the employment situation in Canada, another indicator of an economic slowdown, is becoming dismal. In December, Canada’s unemployment rate increased by 0.3% … Read More
Since September 2013, crude oil prices have come down. This has left many investors question where they are headed next. In September of last year, crude oil prices reached as high as $110.00, and now they trade almost 15% lower, around the $94.00 level. Look at the chart below to get the precise picture.
Chart Courtesy of StockCharts.com
When it comes to commodity prices, whether it’s wheat, copper, coffee, or crude oil, supply and demand affect them significantly. Recently, there have been some changes in the global arena that suggest crude oil production will increase.
First off all, thanks to fracking, there’s an oil production boom in the U.S. economy. Due to this, there have been reports suggesting that the U.S. will become energy independent when it comes to its oil needs, even becoming an exporter a few years down the road.
Then, Iran, once a major oil-producing nation, came under heavy sanctions due to its nuclear program. Recently, the country came to an interim deal with the West and, as a result, the restrictions it has faced may be removed and there may be more crude oil on the markets. Before the sanctions, Iranian exports of crude oil amounted to 2.5 million barrels per day. They now stand at one million barrels a day. (Source: Saefong, M.P. and Lesova, P., “Nymex oil cuts loss; Brent nearly recovers,” Market Watch, The Wall Street Journal, November 25, 2013.)
On top of this, Libya, another major oil-producing nation, has faced significant production problems in the recent past due to instability in the country. Libya is hoping to start crude oil production at … Read More
Major economic hubs in the global economy are in outright trouble, and each passing day there’s more economic data suggesting the slowdown is holding its own. Investors need to be wary about what’s happening, because it can affect their portfolio significantly.
The eurozone crisis, which sent ripple effects into the global economy, is rising again. In the early days of the eurozone crisis, we heard how the economies of such nations like Greece, Spain, and Portugal were suffering. Now, the bigger nations in the euro region are showing signs of stress. Consider France, the second-biggest economy in the eurozone, for example. This major economic hub in the global economy witnessed contraction in the third quarter. On top of this, France’s unemployment rate continues to increase.
Germany, the biggest economy in the eurozone and the fourth-biggest economic hub in the global economy, slowed in the third quarter. The gross domestic product (GDP) of the country increased just 0.3% in the third quarter. In the second quarter, Germany’s GDP increased by 0.7%. (Source: “Gross domestic product up 0.3% in 3rd quarter of 2013,” Destatis, November 14, 2013.)
Similarly, Japan, the third-biggest nation in the global economy, continues to struggle, despite the extraordinary measures the central bank and Japanese government have taken to boost the economy. In the third quarter, the growth rate of the Japanese economy slowed down. The GDP grew 0.5% from the previous quarter. The annual GDP growth rate of the Japanese economy was 1.9% in the third quarter. (Source: “Gross Domestic Product: Third Quarter 2013,” Cabinet Office, Government of Japan web site, November 14, 2013.)
Adding more to the … Read More
Sometimes, economic forecasts are way off—in a good way. In late 2012, the International Energy Agency (IEA) predicted that the U.S. would surpass Saudi Arabia as the world’s leading oil producer within a decade.
It was announced last week that the U.S. is expected to best Saudi Arabia as the world’s biggest total supplier of oil this year (which includes natural gas liquids and biofuels). In 2013, the U.S. is expected to produce an average of 12.1 million barrels per day, which is 300,000 barrels per day higher than Saudi Arabia and 1.6 million barrels per day greater than Russia.
America’s position as the leading producer of oil and gas has surged as a result of shale oil found in the Bakken fields. According to the United States Geological Service, the Bakken—shorthand for the entire eight-million-acre Williston Basin area underlying North Dakota and Montana—contains 4.3 billion barrels of recoverable oil and gas equivalents. Others predict recoverable oil reserves could be as high as 24 billion barrels.
Chart courtesy of the U.S. Energy Information Administration;
last accessed October 21, 2013.
Thanks to improved horizontal drilling technology and hydraulic fracturing processes, oil and natural gas producers can drill lengthwise through shale deposits. That means billions of once uneconomically unrecoverable barrels of shale oil are now readily available, helping kick-start the second biggest oil boom in history and turning the U.S. into the world’s top oil producer.
Over the last four years, shale output in the U.S. has increased by 3.2 million barrels per day. This is the biggest climb since between 1970 and 1974, when Saudi Arabia raised its own oil … Read More
The idea of nearly one million U.S. federal employees (read: consumers) being furloughed and not getting paid has sent oil prices tumbling to a three-month low, hovering near $100.00 a barrel.
The reach of the U.S. government shutdown goes well beyond those furloughed; it also affects those who rely on government services. Permitting and leasing for oil and gas drilling is at a halt, with 81% of all employees in the Department of Interior (which encompasses the Bureau of Land Management) on furlough. (Source: Ackerman, A., “Which Government Workers Are Affected by Shutdown?,” Wall Street Journal web site, October 2, 2013.)
Investors are also fearful that even a temporary furlough will dampen an already tepid economic recovery and drive the demand for oil and gas lower. And they should be afraid, as fourth-quarter U.S. growth is projected to decline 0.2 percentage points for every week that the U.S. government shutdown continues.
But that’s only one in a number of factors that are putting pressure on oil prices. On Wednesday, U.S. commercial crude oil inventory numbers came in at 5.5 million barrels, well above the forecasted 2.4 million barrels.
On top of that, improving relations in the Middle East, the resumption of full oil production in Libya, an easing of Western sanctions on crude oil exports from Iran, and a relatively quiet U.S. hurricane season could weigh on oil prices even longer.
However, once the U.S. government shutdown is in the rearview mirror, oil prices should start to recover. But in the meantime, while oil prices are trending lower, the price of some pipeline stocks have been breaking out.
Chart courtesy … Read More
Not too long ago, the per-barrel price of oil was hovering close to $85.00. Now, a few months later, it trades above $107.00; this is an increase of roughly 25% in a fairly short period of time.
One may ask why this matters, and what it means for the overall U.S. economy.
At the most basic level, the price of oil has a very deep impact on consumer spending, which makes up 70% of the gross domestic product (GDP) of the U.S. economy. It impacts consumers in two ways.
First, let this be clear: while the average American Joe doesn’t use crude oil in raw form, he does use it in the form of gasoline in his car. Oil and gasoline prices have a direct relationship; together, they shrink the size of consumers’ pockets. When oil prices increase, consumers end up spending more at the pump and less on goods they want to buy. Note the black line in the chart below: it shows gasoline prices per gallon, and their movement along with oil prices.Take a look at the chart below to get a better idea about surging oil prices:
Chart courtesy of www.StockCharts.com
Second, when oil prices increase, they cause the transportation costs to go higher as well. Eventually, the increased costs are transferred to customers; this makes goods and services more expensive, and their dollar buys less than what it did before.
So how can investors profit from increasing oil prices?
When oil prices go up, different sectors react in different manners. This means some are highly affected, while others, not so much.
Consider the airline industry: what … Read More
It’s boom time in the domestic oil business, and production is on a big-time upswing after years of decline. New technology is helping, but so is a willingness to look for oil in non-traditional places, like North Dakota and Montana. And it’s all happening in the face of oil prices that seemingly refuse to cross the $100.00-per-barrel threshold.
But it isn’t just oil. Today there’s a glut of natural gas, and prices have taken a hit. There is solid potential for oil prices to advance this year, but in order for this to happen, both the China and the U.S. economy have to show more growth.
Global demand for oil continues to be solid, and 2013 consumption growth is expected around its normal average. With the big increase in domestic oil production, it’s fair to say that oil prices are actually holding up well. One thing that isn’t happening is the stock market is no longer trading off oil prices—that metric has gone by the wayside for now.
Typically, you can’t go wrong owning one of the integrated oil companies. The fact of the matter is that the only way to beat higher gasoline prices is to own a piece of the company. Large-cap oil producers like Exxon Mobil Corporation (NYSE/XOM) and Chevron Corporation (NYSE/CVX) have done exceptionally well on the stock market over the long term; and this doesn’t include dividends paid, which are substantial.
To be a buyer of large-cap oil now, the near-term return would be dividends only, as these stocks are fully priced and oil prices seem stuck in their range. There are a considerable number … Read More