Here is what has evolved.
What has happened to their forecasts since our last letter is that the upper ends of the ranges have been pulled back from above $100 in nearly all of the coming year's futures contract expirations, to now mostly between $95 and $100. The lower ends have been reduced similarly, but primarily in the nearest few months. In the coming year the lowest forecasts are still where they were on Nov. 9, at $75.
In short, the market's near-term over-enthusiasm has abated, but it retains the conviction that "normal" prices above $80 a barrel will be sustained. So if your business is driving taxis, trucks or buses, don't plan on regular supplies of sub-$3 gasoline.
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Some important history: Gasoline prices for years have been cheaper in the U.S. than in Europe. Back when oil was first discovered here and the auto industry was in its infancy, there was far more oil readily available than could possibly be consumed.
Price wars developed by flooding the market with product temporarily, big competitors driving out small ones. Not fair, it was held. So limits were placed on what could be produced, by limiting what could be transported from the oil fields to the markets.
The Texas Railroad Commission became the governing valve in the process. Its "Texas allowable" was for decades the ready measure of oil activity. But when the allowable reached 100% of field capacity and remained there, OPEC realized its day had come.
That triggered the first "oil crisis" in the 1960s and 1970s. First, prices were driven up by constraining world supply, and then driven down as the cartel participants cheated on each other and secretly overproduced. OPEC attempted to be the "world allowable" but lacked the discipline or controls.
While there remains at present some shut-in production capacity in the Middle East, much of what is potentially available is "sour" crude, high in sulfur content. Oil refining liberates water from crude, which mixes quite well with sulfur under elevated temperatures, to form sulfuric acid, which greedily eats refinery pipes, valves and other vital parts. Not good when there is a shortage worldwide of refining capacity.
So, to make money in energy stocks, we need to watch for the inevitable pricing opportunities in the stocks that may from time to time be driven by short-term weakness in crude prices.
The pro oil traders know what is likely for crude, and the pro volume stock market makers know what is likely for stocks. The natural volatility in crude prices will sustain the advantage of short-term investing in energy stocks.
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Right now there are a surprising number of Big Oils that offer price return potentials at or above our plus-5% in three months investment hurdle. Apache is the only U.S.-based producer that makes it.
Of the others, Petroleo Brasilerio looks sound. China Petroleum & Chemical , PetroChina and CNOOC all have reachable targets.
In the Oil Services and Transport set, the hot stock of the moment is Dry Ships . Oceaneering International , World Fuel Services , W-H Energy Services , National Oilwell Varco and Tenaris , the pipe supplier, all appear to be on the rebound from recent downward price adjustments.
Via: Forbes |by Peter Way
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