Last week certainly felt like a roller-coaster ride.
Admittedly, it’s been a while since we’ve seen some good news for oil prices. When the EIA released their weekly petroleum report, crude oil prices jumped. It turns out the inventory build of crude oil was much less than expected.
Analysts were expecting an increase of 2.25 million barrels. Instead, the build ended up only being approximately 700,000 barrels. Although U.S. inventory levels are still about 17% (42.8 million barrels) over last year’s level, the news was enough to help crude prices break over $45 per barrel.
On top of the lower inventory build, the EIA reported that gasoline demand rose 1.7% compared to a year ago. Of course, this doesn’t come as too much of a surprise considering the average price at the pump is $1.89 per gallon. Compare that to the $3.14 per gallon we were dishing out last year.
When the report was released last week, you were probably thinking the same thing I was: Finally some bullish news for oil.
Sadly, the rally didn’t last long.
The Long and Short of Oil
Watching oil push past $45 per barrel, the question was whether it would break $50 per barrel. As you know, the end of the week turned out much differently than we expected.
The EIA news was soon forgotten on more news highlighting the economic slowdown. So far, at least as of today, prices have dropped approximately over 10%, yet still manage to stay above the $40/bbl mark.
So, how hard will these economic problems affect demand? It all depends on who you ask. The latest EIA forecast calls for a 1.2 million bbls/day drop in world oil consumption. Furthermore, production is expected to fall to a level we haven’t seen in years.
So what’s up next for crude?
For starters, OPEC’s next move may have several repercussions. On March 15th, OPEC will once again be faced with the question of whether or not to cut output further. Right now, it’s merely a topic of speculation, and the answer depends on which OPEC member you’re listening to, as usual.
Either way, I wouldn’t expect to see crude prices drastically rise or fall based solely on the decision. Remember the last time they announced a massive cut? Oil prices fell to $32 per barrel the day after the announcement.
Even though OPEC has actually reached 80% of the previous round of production cuts, slashing another million barrels per day isn’t out of the question. The Saudis certainly look like they’re ready to cut more production. OPEC’s largest producer is expecting to cut their number of oil rigs by 20%. That means the Saudis plan to have 101 oil rigs operating by the end of 2009, down from 130.
I’m not saying prices are suddenly going to drive higher overnight. Getting back to $100 a barrel oil is going to take some time. I don’t believe it’s a question of “if,” but rather “when” oil will eventually return to triple digits.
Riding This Volatility to Profit
Just because the market is plagued with volatility, that doesn’t mean investors are shut out from making decent gains. I believe investors have two options. They are pretty obvious—you can either play the field or sit on the sidelines and watch as others profit.
Let’s take an example right from the pages of Energy and Capital.
Towards the end of last year, I gave readers a list of three crude oil stocks I felt were oversold. Although I would be comfortable holding all three of those companies in the long term, all three turned out to be short term winners.
Here’s a look at how they played out:
Marathon Oil (NYSE: MRO): Within two weeks, shares of Marathon were on the move, netting many of my readers nearly 20%. During last week’s volatility, Marathon has once again dropped under $22.
Whiting Petroleum (NYSE: WLL): Judging from the massive amount of mail I’ve received from readers, my Energy and Capital readers had even more success with Whiting Petroleum. Those of you savvy enough to get into this Bakken driller managed to post gains over 40% a mere two weeks after reading that column.
EOG Resources (NYSE: EOG): Finally, we have EOG Resources. By riding the volatility wave, many of you were able to pull out of EOG with an admirable 16% gain in early January.
As you can see, the opportunity is out there. The fact is that many of these solid oil and gas stocks are trading at 52-week lows. If that isn’t a screaming bargain, I don’t know what is.
And to think there are still people too afraid to trade.
Playing the Field
Naturally, there’s a catch.
This time, however, the catch works to our favor. I’m fine holding many of those companies for the long run, so even if I miss the first wave, there’s always a chance to catch those profits again. And one thing has become abundantly clear: many of those oil and gas stocks have been unfairly beaten down, making them a huge bargain for investors. Let’s face it, dear reader, what we really care about is how the future turns out.
Our day will come. Of course, if it were that easy, every trader would be a millionaire. The truth is many people allow the fear to take over. They would rather hide out and watch the action from a distance.
Personally, I don’t understand how they can remain inactive like that. If you haven’t noticed, we’ve effectively turned back the clock and are presented with another huge buying opportunity. Truth be told, you really don’t need to wait years to find a profit. You can find out more about those opportunities below.
Until next time,
A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.