oil
Slow Global Demand and Higher Inventory Bearish for Oil
By George Leong for Investment Contrarians | Apr 22, 2013
Oil drives the world.
But the problem now is that the industry is building up an excess inventory in available oil while global demand is dwindling, as the global economy continues to struggle with the aftermath of the Great Recession in 2008. The result: lower oil prices.
Some argue oil prices will easily rally back, but I’m not convinced, based on both the fundamental and technical pictures.
On the chart, the near-term technical outlook for oil prices is bearish. Spot oil prices are below $90.00 a barrel for West Texas Intermediate (WTI) oil, and they’re edging lower to the mid-$80.00 range.
Spot oil prices have recorded 10 new lows and five new highs over the past three months, according to data from Barchart.com. Over the past year, spot oil made 21 new lows to go along with only eight new highs. It’s clear that the market bias is negative on oil prices.
Based on the spot high of $106.16, reached on May 1, 2012, the spot WTI oil price is down 18.3% as of Thursday, which is nearing the official definition of a bear market.
The chart of the WTI spot oil price below shows some indecision, according to my technical analysis.
Chart courtesy of www.StockCharts.com
The fundamental side is also helping to confirm a potential downward pressure on oil prices.
We all know that oil is one of the most volatile of the commodities, fluctuating with the prospects of the global economy and, of course, the happenings in the Middle East.
On the supply side, there is some calm in the Middle East, but the tensions in North Korea … Read More
Why I Continue to Like Black Gold
By George Leong for Investment Contrarians | Mar 11, 2013
Oil is one of the most volatile of the commodities and fluctuates with the prospects of the global economy and of course the happenings in the Middle East.
Yet, if you really look forward, how can you not like oil given the growth in China and, more importantly, the emerging growth in India?
In June 2012, when oil prices fell below $80.00 and some were saying to sell, I was positive, as the chart suggested support would surface and the weakness was not a trend.
The U.S. Energy Department increased its projections for crude oil prices for this year, citing that global oil consumption would rise to a record in 2013. (Source: Shenk, M., “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg News January 8, 2013.)
Take a look at the price chart for the spot West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, oil prices slid despite multiple attempts at rallying back to the $100.00 level. The spot WTI is again back below its 50-day moving average (MA), but I expect there will be decent support at the lower trendline and the 200-day MA.
The chart is displaying what is looking like a bullish flag formation setting up, which means higher oil prices could be coming to back over $100.00 in the best-case scenario based on my technical analysis. You need to also be watchful of the $80.00 support level, which was breached on several occasions; but in each case, a rally followed.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will … Read More
Chavez Dies, What This Means for U.S. Investors
By Sasha Cekerevac for Investment Contrarians | Mar 8, 2013
The death of Venezuelan leader Hugo Chavez is a significant event for millions of people around the world, including Americans.
The most obvious reason is oil, more specifically oil prices. With Venezuela being one of the top-five suppliers to America, any disruptions in supply will have a certain impact on oil prices.
Currently, Venezuela produces approximately 2.5 million barrels of oil per day (bopd), with one million barrels going to the U.S. His death could have a dramatic impact on oil prices, as well as long-term investing possibilities. (Source: Johnson, K., “After Chavez, a Question of His Country’s Oil,” Wall Street Journal, March 5, 2013.)
To begin with, Venezuela has one of the largest reserves of oil of any nation. Prior to Chavez becoming leader, Venezuela was producing approximately 3.5 million bopd. Under his mismanagement and social policies, this has dropped to 2.5 million bopd. Many analysts believed a decade ago that Venezuela should be producing over six million bopd, which would have provided long-term investing opportunities for international firms and kept a lid on oil prices.
However, the nationalization of many international companies meant that Venezuela has lacked in the development of new technologies and is deficient in skilled workers. America, in contrast, has become one of the largest oil and natural gas producers in the world, with significantly lower domestic natural gas and oil prices, providing a boon to those firms involved in long-term investing that have developed technologies to extract these commodities.
This leaves two big questions: where will oil prices go and are there any long-term investing opportunities?
Over the short term, Vice President Nicolas Maduro … Read More
Are You Picking the Right Investment for Higher Oil Prices?
By Sasha Cekerevac for Investment Contrarians | Feb 12, 2013
One of the most difficult aspects of investing is adjusting one’s economic forecast to the dynamic and ever-changing global economic environment. An investor cannot be so dogmatic that they are unable to shift their economic forecast as new data come out.
For much of the second half of last year, there were many fears that China was going to encounter a significant slowdown, and many analysts had been lowering their economic forecast for that nation. Recent data, however, show that perhaps the Chinese economy might be able to rebound, at least in the short term.
China recently reported that exports grew a better-than-expected 25.0% and imports rose a substantial 28.8% from the year-ago period in January. This was in addition to much higher credit issuance, and an inflation rate that was quite subdued at only two percent. (Source: “China trade tops forecasts in holiday distorted month,” Bloomberg BusinessWeek, February 8, 2013.)
There are some issues with the data: the 2012 Chinese New Year began on January 23 and, in 2013, the Chinese New Year began on February 10; this shift in holidays, which result in business closures, needs to be taken into account when making year-over-year comparisons. However, analysts calculating their economic forecast did take this into consideration, predicting exports of 17.5% and imports of 23.5%, according to the median estimates taken by Bloomberg News. (Source: Ibid.)
If the Chinese economy continues to outperform, not only will analysts increase their economic forecast for the remainder of the year, but certain sectors will also benefit, including oil prices.
International oil prices are set based on Brent crude, as opposed to American-produced … Read More
How to Benefit from High Gas Prices
By George Leong for Investment Contrarians | Feb 12, 2013
I’m not sure if you realize this, but the gasoline prices at your pumping station have been on the rise for the last 21 days, based on data from the U.S. Energy Information Administration (EIA). Market watchers blame the rise on industry factors, but we all know that a major reason for the higher prices at the pumps is the greed of the big oil companies that are always looking for reasons to drive gas prices back upward, to make big profits. Isn’t that what America is all about? Screw the small guy!
The price of regular gasoline averaged $3.54 per gallon across the United States as of February 4, up nearly six cents from a year earlier, according to the EIA.
The price of regular gasoline was a mere $1.19 a gallon back on August 20, 1990, and it peaked at $4.05 on July 14, 2008. The low point for gasoline prices was $0.88 per gallon, last reached on February 22, 1999. (Source: U.S. Energy Information Administration web site, last accessed February 11, 2013.)
In my view, the age of cheap gasoline is over—at least here in the United States. You can always move to Venezuela, where the heavily subsidized gasoline costs a mere $0.09 per gallon; instead of paying $120.00 to fill my SUV here, it would cost just over $3.00 for a fill-up in Venezuela, making for some great road trips that wouldn’t empty my bank account.
The oil companies are ripping us off, and it has little to do with the oil prices.
In July 2008, gasoline was priced at $4.11 per gallon. The WTI oil … Read More
Over 33% Revenue Growth Not a Fluke for this Stock
By Sasha Cekerevac for Investment Contrarians | Feb 5, 2013
One of the stronger commodities over the past couple of months has been oil. Oil prices have moved from $85.00 a barrel for West Texas Intermediate (WTI) in November to just under $100.00 per barrel currently.
There are many variables that go into oil prices. Naturally, the initial reaction is to blame geopolitical risks; however, we have not seen any real increase in hostilities, such as an attack on Iran by Israel, that would explain such a strong move in oil prices lately.
Two recent reports might shed some light on the strength in oil prices. The Chicago Institute for Supply Management recently released its Chicago Business Barometer data for January, which showed a sharp 5.6-point increase to 55.6 compared to the previous month. Its data are based on a three-month average, indicating an increase in business activity. (Source: “Chicago Business Barometer,” Institute for Supply Management Chicago web site, January 31, 2013, last accessed February 4, 2013.)
Following that release, the national report on manufacturing by the Institute of Supply Management, as opposed to the regional Chicago report, showed that the Purchasing Managers’ Index rose to 53.1%, a 2.9% jump from December. Thirteen of the 18 manufacturing industries surveyed showed growth in January, with four contracting and one remaining neutral. What’s also of interest is that the petrochemical and coal sector reported a high level of capital expenditure and investment that’s expected to continue in the first two quarters of 2013. (Source: “January 2013 Manufacturing ISM Report On Business,” Institute for Supply Management Chicago web site, February 1, 2013.)
Oil prices look set to continue at current levels, with the … Read More
Why You Shouldn’t Sell Oil
By George Leong for Investment Contrarians | Jan 14, 2013
When oil prices recently fell to below $80.00, I said don’t sell.
The U.S. Energy Department increased its projections for crude oil prices for this year, adding that global oil consumption will rise to a record high in 2013. (Source: “U.S. Energy Department Raises 2013 Oil Forecast,” Bloomberg, January 8, 2012.)
Take a look at the price chart for the December West Texas Intermediate (WTI) futures contract. After trading at $115.00 in May 2011, we have seen oil prices slide, despite multiple attempts at rallying back to the $100.00 level. The spot WTI is trying to hold at its 50-day moving average (MA), currently above its 200-day MA of $85.08.
Yet the chart is displaying what looks like a bullish flag formation setting up, which means that higher oil prices could be coming, rising above $100.00 in the best-case scenario, based on my technical analysis. You need to be watchful of the $80.00 support level, which was breached on several occasions, but in each case, there was a rally after.
Chart courtesy of www.StockCharts.com
I believe oil will continue to hold above at least $80.00 a barrel going forward and will rally as the global economy strengthens. If you extend the oil futures contract to 2021, the current prices range from $83.00 to $96.00, so I’m not that worried and don’t have the urge to go and sell.
Helping to add support will be the continued erosion in the major economies in the eurozone, along with its impact on the U.S. and China.
Also add in the geopolitical issues in the Middle East. Iran and North Korea are real threats … Read More
Will This Industry Lead American Economic Growth for the Next Decade?
By Sasha Cekerevac for Investment Contrarians | Nov 20, 2012
The U.S. is still recovering from the Great Recession, which has substantially lowered America’s economic growth levels. This lack of economic growth is preventing job creation and leading to a persistent and sustained elevated level of unemployment. In spite of the current weak economy and the ineptitude of politicians to take concrete actions in building a solid economic foundation, I believe that one of the main drivers for economic growth over the next several decades will be a derivative of oil prices.
Let me explain. While politicians bicker on both sides, American ingenuity has led the world in technological innovation when it comes to energy extraction; so much so, that the International Energy Agency (IEA) has just come out with a report stating that by 2017, the United States will be the top oil producer in the world, replacing Saudi Arabia. In that same report, by 2015, the U.S. will be the top gas producer in the world. When people around the world think about gas and oil prices, they will look to America as the world leader in technological innovation that is driving this commodity sector. (Source: “U.S. to overtake Saudi as top oil producer—IEA,” Reuters, November 12, 2012.)
Economic growth is spurred by many factors. Two of the most important factors are the competitive advantage worldwide and technological advancements. The increase in oil prices we’ve seen over the past couple of decades has led American firms to develop world-leading, technologically sophisticated methods of extracting both oil and natural gas from beneath the ground. This has resulted in massive increases of both oil and natural gas production in America…. Read More
Will Hurricane Sandy Affect Oil Prices?
By Sasha Cekerevac for Investment Contrarians | Oct 29, 2012
The arrival of Hurricane Sandy on America’s shores is causing severe disruptions to the normal course of business. All along Hurricane Sandy’s path, businesses are shutting down and preparing for the worst. Today, ahead of Hurricane Sandy’s arrival, the U.S. stock exchanges and floor trading on the New York Mercantile Exchange (NYMEX) are closed, although electronic trading on the NYMEX will remain open.
Hurricane Sandy will have one of its biggest impacts on gasoline prices, but won’t necessarily have an impact on oil prices. Many people misunderstand the correlation between oil prices and gasoline prices. For gasoline to be produced, refineries need to convert oil into a usable product. Because of the arrival of Hurricane Sandy, a vast number of East Coast refineries have been shut down.
In fact, over two-thirds of the refineries on the East Coast have been shut down due to Hurricane Sandy. (Source: “Two-thirds of E. Coast refiners shutting as Hurricane Sandy nears,” Reuters, October 29, 2012.) The lack of refining capacities will keep gasoline prices high in the affected regions. Oil prices, however, have been, and will remain, weak due to macroeconomic pressures. In fact, if refining capacities remain off-line for an extended period of time due to damage from the storm, we might see a decline in oil prices. This is because firms are continuing to pump oil; but with refiners shutting down due to Hurricane Sandy, the oil is not being used to convert to gasoline. This will lead to the additional build-up and storage of oil, and a decrease in oil prices if all else remains equal.
Hurricane Sandy will remain a … Read More
What Oil Prices Tell Us about Potential Israeli Strike on Iran
By Sasha Cekerevac for Investment Contrarians | Aug 15, 2012
With the recent string of weak economic data worldwide, one would think that the market sentiment for oil prices would be negative. Even the International Energy Agency (IEA) is expecting lower demand for oil next year due weaker worldwide economic growth. So why are oil prices moving up and is this market sentiment here to stay?
As with many areas of investing, the market sentiment for oil prices is very complex. End-user demand is obviously very important. Over the last decade, we’ve seen the massive growth of emerging nations like China. The country’s increased use of oil has increased global demand with the end result that oil prices have moved up sharply. This market sentiment is now being thwarted with a slowdown in the Chinese economy. This can be best seen by the fact that China is importing oil at the lowest level in nine months, yet oil prices still remain elevated.
Oil is one of the commodities most sensitive to geopolitical events in the Middle East. Following last weekend, Israeli Prime Minister Benjamin Netanyahu stated, once again, that the biggest threat to Israel is Iran developing nuclear weapons. Recent reports that Iran is increasing its nuclear armament progress have increased investors’ market sentiment towards oil prices once again. With worries about a potential war, oil prices have once again started moving up, as the market sentiment is getting scared of not being caught short in this commodity.
Will Israel launch an attack on Iran’s nuclear facilities? No one can know that answer except the Israeli leaders, but we can see from the chart of oil prices that investors are … Read More
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