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Oil & gas, dividend investing, research analyst
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Here we go again. Let’s take a look at the oil chart (created with SuperCharts by Omega Research):

click to enlarge

OIL Prices

Random thoughts:
  • Despite US oil inventories at near 20 year highs, simply the notion of global growth has oil prices up over 50% since March.
  • US dollar weakness is helping to propel oil (and gold) higher.
  • The US consumes around 20 million barrels of oil a day and imports roughly 65% of it. The amount of oil the US consumes is equal to the output of the world’s two largest oil producing nations (Saudi Arabia and Russia) combined.
  • All OPEC countries together recently produced about 24 million barrels per day, only 4 million barrels a day greater than the US alone consumes.
  • Should we drill? Obviously. Can the US make up its 12 million barrel a day oil production deficit by drilling? Considering the US oil production deficit is greater than the entire output of world’s largest oil producer (Russia – 10 million BPD), drilling alone won’t solve our oil crisis.
  • China is using their financial advantage to finance oil production and delivery projects around the globe (Brazil, Russia, Venezuela).
  • The US is not leveraging its best weapons against foreign oil imports: its abundant, clean, and cheap domestic natural gas reserves combined with its 2.3 million mile natural gas pipeline grid connecting every major metropolitan area and 63,000,000 American homes where over 130,000,000 cars and trucks could be refueled every night while their owners sleep.
  • Now that Buffett has sold his stake in ConocoPhillips (NYSE:COP), perhaps now the stock can move higher. Berkshire Hathaway’s (NYSE:BRK.A) reinsurance business is second to none. However, why would investors make a bet on Berkshire Hathaway’s stock when the company is highly exposed to the consumer and is underweight oil and gas stocks as we enter an era of peak oil? Buffett was as wrong selling COP at the price received as he was buying COP at the price he paid.
  • The US hurricane season officially started Monday.
  • The US uses 70% of its total oil consumption in the transportation sector. Obama and Chu apparently want to reduce this by use of electric cars fueled by “clean coal”. However, what is more realistic to cash strapped US consumers: buying an expensive new electric car, or converting their existing SUV to run on cheap and clean natural gas?
  • One doesn’t have to be an efficiency expert to realize moving a 180 lb human being around in a vehicle that weighs 4-5,000 lb is unsustainable.
  • E&P budget cuts by the world’s leading oil companies are setting the stage for the next peak oil spike which could well make 2008’s $145/barrel oil price seem like a good deal.
  • The US has 5% of the world’s population and uses ~25% of the world’s oil. Since it imports 65% of its oil from foreign sources, it is more economically exposed to the price of oil than any other country on earth.
  • The US’s financial footing is now much weaker than it was in 2008 when oil hit $145/barrel. What happens when the next peak oil price spike hits? Since oil is priced in US dollars, and since the US dollar will weaken going forward, will this supercharge oil prices to an even greater extent than in 2008?
  • US policymakers continue in their attempt to address a commodity problem (oil) with financial tomfoolery.
  • Will the BRIC countries succeed in their effort to create a new world currency to insulate themselves from wrong-headed US economic and energy policies?
  • The US needs a strategic comprehensive long-term energy policy.
  • If Obama is sincere about reducing foreign oil imports, why has he not embraced this vehicle and why has he not fired Energy Secretary Chu for saying he is “agnostic” about fueling American cars and trucks with the US’s best energy resource: natural gas?
  • Why are people against natural gas transportation just because they don’t like Boone Pickens or believe Pickens will become rich? Do they prefer funding Saudi Arabia, Iran, Russia, and Venezuela? The truth is the top-3 natural gas producers in the US contribute substantially less than 10% of the country’s total US nat gas production. The backbone of US natural gas production is the small independents and thousands of farmers and landowners. Why not fuel our vehicles with natural gas and funnel our money to fellow Americans as opposed to foreign oil producers?
From an investment perspective, foreign oil producers like British Petroleum (NYSE:BP) and StatOil (NYSE:STO) pay good dividends and will benefit from a weakening US dollar and higher oil prices. Brazil’s Petrobras (NYSE:PBR) has locked up Chinese financing and will benefit not only from a weak US dollar and higher oil prices, but also from increasing production as its huge offshore oil fields get tapped. US firms like Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), and ConocoPhillips (COP) are undervalued and are long term buys. Occidental Petroleum (NYSE:OXY) and Hess (NYSE:HES) are more directly leveraged to oil prices than are the big three and may well appreciate at faster rates going forward. Oil service firms like Schlumberger (NYSE:SLB), Transocean (NYSE:RIG), and Diamond Offshore (NYSE:DO) will perform well in the era of peak oil as the world continues its unwise addiction to gasoline based transportation solutions.
Disclosure: the author owns STO, COP, PBR, and SLB.
Source: My Thoughts on Oil