Minimal Spare Oil Capacity
Low McDep Ratio, buy-recommended stocks include Royal Dutch Shell (RDS.A), Petro-Canada (PCZ), Suncor (SU), Occidental Petroleum (OXY) and Encore Acquisition (EAC).
The U.S. Energy Information Administration forecasts that a million barrels a day [mmbd] of spare global oil capacity will open up in 2007. A similar forecast a year ago was not met. Competent analysts don’t have the capability to anticipate confidently such a small difference between large numbers, considering that global oil demand was about 85 mmbd for 2006 and demand for all fuels was about 220 mmbd. The amount of capacity idled recently by warm weather could be reversed as quickly as it appeared.
At the same time, ominous signs of a new naval and military buildup in the Persian Gulf may be putting that region’s more than 20 mmbd of capacity at higher risk. Separately, we add recently recommended Hugoton Royalty Trust (HGT) to the illustrative McDep energy portfolio at a half unlevered weight.

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