Oil Outlook: 2010 Will Be Better Than 1982

Buy recommendations of oil and gas producers like Occidental Petroleum (OXY) may have more potential for gain in the rest of 2008, but buy recommendations of producer/refiners like ConocoPhillips (COP) may have more potential to keep gains by the end of 2010. Looking back 28 years to a time when Phil Dodge and I collaborated on the coverage of oil and gas stocks at Donaldson, Lufkin and Jenrette, the hottest stars were oil and gas producers without accompanying oil refining and marketing operations.

The median of 25 of those stocks increased in price to 3.8 times from the end of 1978 to the end of 1980 and held to 1.8 times at the end of 1982. The median of 19 Producer/Refiner stocks increased to 2.3 times from the end of 1978 to the end of 1980 and held to 1.4 times at the end of 1982. In today’s coverage, the median of 16 producers increased in stock price to 1.8 times the end of 2006 while the median of 13 producer/refiners has reached 1.3.

Offsetting factors that make the outlook better for 2010 than it proved to be for 1982 include a stronger outlook for global growth, lower interest rates and a more realistic acceptance of the limits of energy supply. Meanwhile the oil price trend is spreading more to future years as the quote for delivery over six years matches the quote for one-year.

Originally published on May 20, 2008.

Comments

[bluesmoke:]

Kurt, I just wanted to thank you for your insights. I go to your website often. You must be a pretty smart guy. Thanks again.

2008 Jun 03 10:12 AM

[pachanguero:]

good job amigo

2008 Jun 03 10:58 AM

[Urbane Gori...:]

I agree... Kudos... Always good stuff.. Thx jegan ;-)

2008 Jun 03 03:42 PM

[The Stockac...:]

The
Stockaccumulator

Good article, but a far better buy today would be PBR during this brief rare, mini-pullback in PBR...Read the below carefully researched article from "The street.com on Petroleo Brasileiro:

" (PBR - Cramer's Take - Stockpickr) shareholders have earned a 172% return on their investment over the last 52 weeks.

"If last week's positive earnings announcement is any indication, this Brazilian oil company has a lot more going for it than just good-looking charts (though the charts look good, too.)

PetroBras Returns Continue to Beat Oil and Brazil Investment Benchmarks

PetroBras boasts nearly a $300 billion market capitalization (its market cap just passed that of Microsoft(MSFT - Cramer's Take - Stockpickr)).

In fact, it now claims to be the third-largest publicly traded company in the Americas, behind Exxon Mobil(XOM - Cramer's Take - Stockpickr) and General Electric(GE - Cramer's Take - Stockpickr).

With a presence like that, it's clearly a bellwether stock both for the Latin American region and in the oil sector.

PetroBras does a lot: It explores for and produces oil and natural gas. It sells surplus production in Brazil and foreign markets. PetroBras operates oil tankers, distribution pipelines, marine, river and lake terminals, thermal power plants, fertilizer plants and petrochemical units. It is also building new pipelines for ethanol distribution and recently set up a separate operation to manage all its ethanol activities.

Here are three reasons I like PetroBras.

1. The recent oil and gas announcements are real.

In the last six months, PetroBras has discovered three super-giant oil fields in Brazil's offshore Santos Basin. The company also confirmed in January a major natural gas and condensate deposit in the Jupiter area.

If estimates of 33 billion barrels in reserve from another field (Carioca-Sugar Loaf) prove correct, then this ranks as the third-largest oil field in the world after Saudi Arabia's Ghawar (66 billion barrels) and Kuwait's Greater Burgan (46 billion barrels). "

Rudy Martin the writer ot this is the former director of research for TheStreet.com Ratings. Earlier he worked 25 years in investment research and management positions with Fidelity Investments, Lincoln National, Dean Witter Reynolds and Transamerica Investments. He began his career as a securities investment analyst at Duff and Phelps where he published equity and fixed income securities investment recommendations. Martin holds a master's degree in finance from Kellogg Northwestern University and is also a Chartered Life Underwriter. "

It is expected that PBR will have a huge number for this coming quarter's earnings announcement very shortly. Never has there been such a huge expected net profit number from any oil company, and due to the April and May record price of crude. The graphs show the accumulation going into and through each earnings announcement to be far more impressive than any other large oil/gas company... One will have to take great risk with smaller similar companies... PBR will make you money next week/month, and expect $140 by next year this time for PBR... todays $68 is a brief temporary bargain... in a week or so PBR will be back to its all time high of $78... this is a rare opportunity... research it, look at the graphs... amazing for such a large well established company that is perhaps the microsoft of oil...

I may buy 20,000 more shares of PBR today or early tommorrow...

Warmest regards... the STOCK ACCUMULATOR

2008 Jun 04 09:13 AM