Global Oil Supply
The Great OPEC Bailout
It's difficult to pin down an exact dollar amount when it comes to the billions of our money that will ultimately be wasted bailing out the U.S. auto industry, all because the Treasury Department has a tendency to continually revise its numbers.
Their most recent report pegged the amount lost at around $25 billion.
And if you think that's bad, prepare yourself.
You're in for a shock when you learn about the bailout going down right now...
It's taking place in a sector that's even more crucial to the world economy than the auto industry — energy.
This time, it doesn't fall on the shoulders of the taxpayer. This time, it's a team effort on the part of North American energy companies. And who's being bailed out might come as a surprise...
Of course, most people I talk to are hesitant to help OPEC in the first place. After all, when was the last time you felt some sympathy for the 12-member oil cartel that controls upwards of 30 million barrels per day of the world's oil supply?
That's why today, we're going to focus on how their crisis can be turned into your advantage...
Supply Disruptions and Missed Projections
When the International Energy Agency released its monthly oil market report a few days ago, it was clear how much we were covering for OPEC's dismal supply issues...
In July, oil supply from the mighty OPEC fell by 165,000 barrels per day, which was largely blamed on supply disruptions in Libya and Iraq. Together the dozen countries that make up OPEC produced about 30.4 million barrels per day in July.
This production decline took place despite Saudi Arabia boosting its own production by 100,000 barrels per day.
This means the 30 million barrels per day OPEC members will produce next year only satisfies about 32% of global demand — far less control than they're used to. (Some of us can probably remember when these countries commanded well over 40% of the world's oil supply.)
And to rub more salt in the wound, let's not forget that OPEC's poster child for spare capacity — the one and only Iraq — was supposed to be able to boost oil production to over 12 million barrels per day in the foreseeable future. Today Iraq is responsible for over half a million barrels per day of OPEC's supply disruption.
So much for those rosy projections...
Trust me, I'm not holding my breath as to whether or not Iraq can overcome the geopolitical mess plaguing much of the Middle East.
The real danger is that Saudi Arabia can't keep making up the slack. We know the Saudi Kingdom is stretched thin as it is.
Then again, it looks like the pressure's off Iraq so long as we're the ones bailing out OPEC.
The Real Bailout
The IEA's August oil report wasn't all doom and gloom...
Along with the news that OPEC was losing its touch at pumping crude out of the ground was a glimpse that North American producers had found their touch again.
Non-OPEC supply growth is being driven by Canada and the United States, and the two countries are projected to add another 1.4 million barrels per day during the latter half of the year. This supply is coming from the tight oil plays that have flooded media headlines recently.
That's what makes this bailout quite different from the ones we've witnessed in recent years, because rather than throwing billions of dollars down the drain, we're the ones cashing in.
But as always, it's important to pay close attention to the stories flooding the headlines. As it turns out, only some of those shale investments are paying off...
Coming Up Short: Shale Investing Plagues Big Oil
I'll be the first one to admit how much I enjoy watching Big Oil come up short.
Maybe it's because these investments have underperformed during one of the most profitable periods for North American energy stocks, or perhaps I just love an underdog. Whatever the reason, the major integrated oil companies have always disappointed me — as well as a few of their shareholders.
And isn't Big Oil supposed to be a solid performer for investors over the long run? After all, they don't call ExxonMobil a "widow and orphan stock" for nothing.
But even over the last ten years, XOM has failed to impress us, especially compared to two of the top independent oil companies in North Dakota and Texas, Continental Resources and Pioneer Natural Resources:
In fact, both of these smaller companies have crushed ExxonMobil's performance for a decade!
Believe me when I tell you it's not luck on their side. Rather, it's being in the right play at the right time, a concept Exxon has yet to grasp.
(Anyone care to bet how much Rex Tillerson and friends regret their $41 billion bet on shale gas after acquiring XTO Energy?)
Don't fall for the same trap Exxon shareholders did.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.