Last March, oil was trading at a dismal $45/barrel. Nearly every oil stock you followed had been crushed. (Believe me, I was suffering just as much as you were.) And it's sad to say, but that price felt infinitely better than when crude prices fell to $32 per barrel in December 2008...
Yet no matter how depressed we were watching our stocks crash alongside oil prices, I told you our day would come. At the time, I said that investors have two options: They could either play the field or sit on the sidelines.
You know how the story played out over the next twelve months... Our stocks rallied while crude prices rebounded — and here we are today, with oil comfortably trading at $70-$80 per barrel.
I've said before that trading last March was as easy as blindly throwing a dart against a wall. To some extent, that's true — it's difficult to find a stock that wouldn't have made you money since last March.
But lately, I've been rethinking that position...
Devil in the Details
OPEC certainly has a stigma attached to it. Despite the fact that its members pump out one-third of the world's oil production, I have yet to meet a reader who actually trusts the 12-country cartel.
Ask yourself what's the first thing is that comes to mind when you come across OPEC...
I immediately think of the shady reserve increases that occurred in the 1980s. Several OPEC countries drastically raised their oil reserves.
Anyone else remember this?
It's a regular sight to see OPEC break their quotas. "Honesty" does not seem to be in their dictionary.
So what has me thinking of OPEC's shifty past?
Two weeks ago, ExxonMobil announced their 2009 reserves replacement. (Simply put, the reserves replacement is the amount of new reserves compared to oil produced.) In 2009, ExxonMobil added 2 billion barrels of oil equivalent to its reserves, replacing 133% of its production during that year.
ExxonMobil — one the world's largest publicly traded oil companies — shouldn't be so quick to gloat. These new reserves aren't easy-to-get from conventional sources, and the reality is that Exxon's saving grace lies in developing unconventional oil, such as oil sands.
In other words, developing those new barrels will be costly.
Investing in Crude Oil Stocks: A Year Later
My regular readers should know that I'm not much of an ExxonMobil fan. It's not just the shenanigans with ExxonMobil's latest reserve replacements that has made me sour; it's the fact that this company has yet to impress me.
Don't let the company's size fool you. Too many people make the mistake of believing that these "supermajors" drive world oil production.
If you were to add up the oil and gas reserves of all six of the supermajors (a group which includes ExxonMobil), you would only account for approximately 5% of the world's oil and gas reserves. About 95% of known oil and gas reserves are tightly held by state-owned oil companies like Saudi Aramco.
You see, ExxonMobil is one of those companies that would have lost you money as the oil markets bottomed out last March.
If you had told me that last year, I wouldn't have believed it. After all, crude prices have nearly doubled since last year. So how could ExxonMobil not make you money?
Compare ExxonMobil to the three oil and gas stocks I mentioned last March when I told you about the buying opportunity...
As you can see below, my Energy and Capital readers outperformed ExxonMobil:
Pretty depressing for anyone who bought ExxonMobil in the last twelve months, isn't it?
Oil's Next Buying Opportunity
There's a reason I brought up ExxonMobil's troubling performance. It's not because I revel in Exxon's failures. (Okay, I do to a certain extent.) But the fact is that I see another huge buying opportunity on the horizon.
This time it won't be as easy as it was last March.
Our production is barely holding on to 5 million barrels per day. In 2008, production fell to 4.9 million barrels per day — a level we haven't seen since 1946. Now that we're headed for a recovery, demand is expected to return.
The EIA has stated that oil markets are expected to become tighter in 2010 and 2011.
This time, however, we're going have a lot more trouble finding more oil. I've already laid out the crisis that Mexico is having with its oil industry. In the next few years, they'll be relying on us for help.
We can't look to the Saudis, either. When was the last time you heard the American public beg for more oil from the Middle East?
That leaves the U.S. with only one option left. And I'll tell you all about it next week, including several companies that will pay back the money you lost with ExxonMobil.
Until next time,
Keith Kohl
Investor's Note: While those three oil plays outperformed ExxonMobil, there's one in particular that could have made you a small fortune. My readers at the $20 Trillion Report who bought this tiny company back when I called the bottom in March are holding gains over 1500%. And that's just one play...
I've put together this free report for my Energy and Capital readers who are interested in sharing on our trading success. Simply click here for more information.
Subscribe to
I would seriously suggest you exercise some caution when criticisig Exxon/Mobil. In 1986, Canvest Research Ltd in BC Canada developed a Biodiesel from a marine algae which we deemed to be the Alpha algae which created Earth's Ozone Layer, atmosphere and weather. Quite by accident we picked some up floating dormant in the Pacific Ocean and triggered it back to life from dormancy in our quest to find the cause of the toxic algae blooms. The Alpha algae was not toxic, but it had a horrendous appetite and able to consume anything we fed in the laboratory. By law, we had to destroy all the algae we picked up in high temperature furnaces, the most immediate high temp furnace available to us was the combustion chamber of our diesel generator. To our amazement, when we turned off the diesel feed, it continued to run on the algae being fed in independent of the diesel. We created the world's first affordable Biodiesel, so Exxon.Mobil had the company crushed, it development grants withdrawn, all lines of credit withdrawn and two of the directors mysteriously died of heart disease while on holiday. The third director, myself fell ill,paralysed with a massive stroke which took years of therapy to overcome and get me back to work. We have subsequently found the source of the Alpha algae by tracking the tides at the time of discovery off Canada, that we assumed to be the melting glacier in northern BC. But, further tests demostrated the algae was derived from Antarctica. We now have a new Company Maxwell Energy Corporation Ltd to raise funding to produce suffcient biodiesel to replace petro diesel around the world.
Yours truly,
Barry Larkman
There isn't anything remotely close to replace what we need in fossill fuels (SOME DREAMERS THINK THERE ARE!!!)
The U. S. economy will suffer from this STUPIDITY astronomically.
I might add; all for dirty filthy lie of global warming. (THE DEBATE IS OVER IT'S A BEEN PROVEN A COMPLETE LIE)
10.00 A GALLON GAS IS RIGHT AROUND THE CORNER!!! (NOT MANY WIIL NEED ANY, NOBODY WILL HAVE A JOB!!!)
I'm not going to argue with idiots I would like to see us be energy independent as much as anyone, but it has to be a transition, and not based on lies and innuendo.
Just one quick example, solar energy is considered viable, when it costs OVER $100.00 a killowatt!!(Current (FEB.) $.08 per kill)
How long has this talk of algae as fuel been going on,(40 years plus) and it's not even close to being viable!!!
Just 15 years ago natural gas was the NEW CLEAN FUEL, now that we've found massive amounts of it here, it's just as bad as oil!!!
It,s about tax and control not about energy.
Under CAP and TRADE it will cost $2.50 to $5.00 Gal. JUST to REFINE gas or diesel. That is why these companies are getting ready to get out of the oil buisness.
Some are getting into natural gas and I'm exited about potential for LNG. LNG is not a cure all as far as replacement for GAS and DIESEL, there are some problems ahead in the safety and logistics of LNG.
I still think there might be some good investment opportunities in natural gas and LNG.
I don't NOW, and NEVER have, owned any oil stocks.
THANKS FOR YOUR TIME
LE ROY ERICKSON