The opportunity is out there for investors, yet people are still too afraid to trade.
At least, that’s what I told my readers three months ago. At the time, there was little to get excited about with crude oil, which was barely holding steady over $40 per barrel. Inventory levels were still building. Of course, not much has changed on that front, considering U.S. inventories of crude oil have been rising ever since.
Like many of you, I saw some of my favorite oil and gas stocks trading at near 52-week lows. I knew there were a lot of stocks unfairly beaten down, which opened a huge door for investors.
In response, one reader in particular was thoughtful enough to warn me to be wary of calling for higher energy prices during a down economy. I couldn’t help but agree to an extent. There was certainly a chance that oil prices might head lower, especially with all the bad news we were reading at the time. Lower consumption levels, higher inventory, you name it.
Then there was another gentlemen who was bit less tactful, and lambasted me for suggesting oil may be headed higher. Needless to say, his caps lock button may have been stuck as he vented his frustrations. His email left me shaking my head sadly. He simply refused to recognize the opportunity in front of him.
It was a mistake I hope many of you don’t make, especially in today’s market.
How Far Can Oil Run?
It’s interesting to watch oil trade closer to the $60/bbl mark each day. Last Thursday, prices rose as high as $58 per barrel before settling back down below $57 per barrel.
It seems like only a matter of time.
However, I’m curious as to whether your sentiment has changed. Granted, the story hasn’t changed much on inventory. Lately, it hasn’t been a question of whether our inventory level of crude oil dropped, but rather of how much did it increase. That might change now that we’re heading into 2009’s summer driving season.
Although OPEC isn’t meeting until the end of May, Iran has already come out saying more production cuts are on the way. Personally, I think it feels like the same old song and dance.
Then we have Venezuela. And believe me, Chavez has come out swinging again. A law was recently passed that is letting the state take complete control of anything related to the oil industry.
According to Venezuela’s Energy Minister, "Companies that are selected for nationalization will not be able to mount lawsuits in foreign countries, because the measure stipulates that disputes will be resolved exclusively by the courts."
For some reason, I’m not too surprised by the bold move.
So, what can we expect for crude in the long run?
Barring some particularly nasty economic news, I don’t believe we’ll see oil prices below $50 per barrel. If we do, we’ll undoubtedly see OPEC take action. Of course, if things keep going the way they have been, we’ll probably see $100/bbl oil much sooner than expected.
But here’s the interesting part. . .
It doesn’t matter.
Investing in Oil Stocks
Investors don’t need triple-digit oil prices. The truth is they’ve never needed $147/bbl crude in order to see their investments make gains.
Let’s take those oil and gas companies I mentioned earlier. At the tail end of 2008, I gave my Energy and Capital readers three stocks that (to me, at least) felt beaten down. They were Marathon Oil (NYSE: MRO), Whiting Petroleum (NYSE: WLL), and EOG Resources (NYSE: EOG). A few weeks later, all three had made admirable gains.
Fast forward to early March when I pointed out all three, despite the short term gains, were trading at 52-week lows. The panic selling was just too much. I’m sure my friend with the broken caps lock button would be singing a different tune if he had looked into those energy stocks.
All three bottomed out on that day. Since then, Marathon Oil has managed to climb 46% higher. EOG has been a little more successful, up 68%. Whiting Petroleum, however, took the cake after jumping 109%.
If those aren’t attractive gains, I’m in the wrong business.
Like I said before, it doesn’t matter if energy prices don’t triple in the near future. The point is that there are plenty of opportunities for us.
There’s no question where energy is headed in the future. Granted, it’s not as easy as blindly throwing a dart against a wall. And even though things are getting better, we’re certainly not out of the dark yet. But like everyone else in today’s market, you need to start somewhere.
Until next time,
P.S. Brian Hicks’ most recent Wealth Daily essay shares the easiest way to take advantage of the second wave of the energy boom. You can read all about it right here.