I'm not buying the recent argument that greedy Wall Street speculators are fueling high oil & gas prices. It seems just a little too convenient that we unearth the culprit as the presidential election nears. The current administration is pulling out all the stops to divert the public's attention from their anti-fossil fuel policies. Just today President Obama stood in Cushing, Oklahoma, an oil town known in the industry as the nation's pipeline crossroads, before acres of stacked pipeline pieces to demonstrate his support for the southern leg of the Keystone XL oil pipeline. The very one he previously vetoed in aggregate.
I posit this latest stunt as well as the conveniently contrived excuse that speculators are responsible for high oil & gas prices is simply another page out of the administration's blame game and misdirection playbook. Sure there is oil & gas speculation and it does account for some semblance of higher oil & gas prices, nevertheless, this is no case of the tail wagging the dog. There are much greater forces at work in the market today. The current riotous events in the Middle East have brought attention to the burgeoning energy demands of the recovering developed economies of Europe and the United States; not to mention the rising energy requirements of emerging markets. The fact that demand is outstripping supply appears to be blatantly obvious.
There is no disputing this scenario. The emerging markets of the globe haven't even begun to demand their fair share. Contemplate this, what do you think is going to occur when the developed economies actually recover and emerging markets gain viable traction? You can kiss $100 a barrel oil goodbye. The fact of the matter is all the easy oil and gas has been discovered and recovered. We are now left with on shore hydraulic fracking and deep sea drilling. These developments cannot be ignored. The following is a list of macro catalysts for oil and gas.
Major Macro Oil and Gas Catalysts
- Emerging market countries (China and India) increasing strategic reserve stockpiles
- Middle Eastern instability due to Iran, Iraq and Syria. The European Union reached a preliminary agreement to ban imports of Iranian crude, intensifying strains in the West's impasse with Tehran.
- Chinese and emerging market demand growth rising
- Recent better than expected U.S. Consumer confidence, manufacturing statistics and jobs data
- Chinese and emerging market demand is rising
- U.S. Economy is improving as European sovereign debt fears Subside
- U.S. Federal reserve and global central bank monetary policies
- Foreign energy companies are snapped up America's black gold. Total (TOT) and China's Sinopec (SHI) are the most recent entrants. Total recently closed a $2.32 billion deal on a 25% stake in an Ohio shale deposit operated by Chesapeake. Sinopec recently paid $900 million and pledged to cover up to $1.6 billion in drilling costs for a 33% stake in Devon's (DVN) portfolio of properties.
Current Oil & Gas Performance Snapshot
Brent crude was steady above $123 a barrel on Friday, rebounding from sharp falls in the previous session, as better-than-expected U.S. Economic data eased fears of a sharp slowdown in China hitting oil demand. Please review this short excerpt from Reuters:
A report showing the number of Americans claiming new unemployment benefits dropped to a four-year low last week, while a gauge of future U.S. economic activity posted its fifth straight monthly increase in February in fresh signs of gaining economic momentum.
But analysts warned that U.S. momentum could slow if the global economy keeps sliding.
Oil prices fell by almost 2 percent on Thursday after data showed manufacturing activity shrinking for a fifth straight month in China and the euro zone showed displayed signs of wilting.
"The macroeconomic picture is getting better, especially in the U.S., and that's helping oil prices. But the recovery is very slow and there's still a lot of uncertainty regarding China and Europe," said Ken Hasegawa, a commodity derivatives manager at Newedge Brokerage in Tokyo.
U.S. Oil Patch Buying Opportunities
The following are five energy equities that are well positioned in the oil & gas market, yet were deeply sold off yesterday. I see this as a significant buying opportunity. The five companies experiencing unjustified one day losses from 3 to 4% are Sandridge Energy Inc. (SD) down 4.15% currently trading at $7.63, Halliburton Company (HAL) down 3.37% currently trading at $32.98, Kodiak Oil & Gas Corp (KOG) down 4.07% currently trading at $10.13, Hess Corporation (HES) down 3.28% currently trading at $59.21 and Anadarko Petroleum Corporation (APC) down 3.47% currently trading at $78.23. I surmise peak oil is here to stay regardless of the minor fluctuations in the energy markets. I posit these energy equities will soon soar from their current share prices based on macroeconomic, sector and company specific catalysts. The world has stepped up and taken notice of the vast value of the North American unconventional shale plays and put their money where their mouth is. I believe this trend will drive the share prices of these stocks higher. America's black gold rush is here, and these stocks are set to rally.
Based on these facts, the future of companies in the energy industry seems brighter than ever. With the finite nature of oil & gas resources, the continued success of these companies appears certain.
Use this information as a starting point for your own due diligence and research methods before determining whether or not to buy or sell a security. If you choose to start a position in any stock, I suggest layering in a quarter at a time on a weekly basis to reduce risk and setting a 5% trailing stop loss order to minimize losses.