Oil's Troubles Continue

Keith Kohl

Written By Keith Kohl

Posted December 12, 2009

Welcome to the Energy and Capital weekend edition — our insights in investing, as well as the top stories this week from Energy and Capital and our sister publications.

After watching the dollar strengthening for most of the week, we knew crude oil was in for a rough patch. After all, whenever the dollar gains momentum… you can bet investors will lose their interest for commodities.

Oil prices opened on Monday this week at $75.80 per barrel, and briefly traded over $76 per barrel. However, things quickly took a turn in the opposite direction. By Wednesday, crude prices had fallen more than 7%.

Once the EIA’s weekly oil report showed another increase in gasoline supplies, nothing was going to change the week’s sentiment. Even after a slight drop in crude oil inventories, the fact is that they are still 7% higher than the five-year average. Friday marked the eighth consecutive drop for oil prices and the first time in a while that we’ve seen oil fall below $70 per barrel.

  • Despite being less than two weeks away, we’re not expecting much to come from OPEC’s December 22 meeting in Angola. It will be difficult to reprimand members for breaking their quotas considering they’re all currently producing above those quotas. Production is expected to remain around 24.8 million barrels per day. OPEC officials have repeatedly stated the organization is satisfied with current prices.

  • Recently, the IEA cut its forecast for non-OPEC oil supplies due to delays in North American projects. Remember, non-OPEC producers account for approximately 60% of the world’s total output. According to the IEA, non-OPEC producers will supply 265,000 barrels per day less than previously expected. One of the reasons for the revision is due to delayed start-up dates for projects in the Gulf of Mexico.

  • Although the bidding process for developing Iraq’s oil fields has been complicated (to say the least), new contracts were awarded on Friday. Winning bids were received by both Royal Dutch Shell and China’s CNPC. During the auction, two projects received no bids, while one bid for the Qaiyarah field was rejected because the feel was too high.

  • As oil supplies get increasingly tighter at super-giant fields due to depletion problems, companies will have to continually look further and drill deeper than ever before. A recent Douglas-Westwood offshore report showed that more than $330 billion will be spent on offshore operations over the next five years.

  • Trying to hedge itself from lower oil prices, Mexico weighing its options — literally. The country’s Finance Ministry announced it is spending over $1 billion on put options, which gives them the right (but not the obligation) to sell oil at that price next year. According to Finance Minister Agustin Carstens, "We want this as an insurance policy."

Until next time,

keith kohl

Keith Kohl

Energy and Capital

P.S. In case you missed our top stories from this week’s Energy and Capital or our sister publications, I’ve included them below.

Funding for Renewable Energy Companies: Crisis Equals Opportunity
Green Chip Publisher Jeff Siegel takes a hard look at the funding crisis facing renewable energy companies, and finds one place these green companies can go to for help.

Greenland’s Gift: Securing $273 Billion Worth of Rare Earth Elements
Energy and Capital readers have a chance to take advantage of a tiny chunk of Arctic real estate worth $273 billion. In just a matter of weeks, one company will control the rights to these rare earth metals that are crucial to the future of modern circuitry… but you can still get in now on this profit opportunity.

The Peak Oil Report Buried in the Financial Crisis: Putting the Pieces to Peak Oil Together
Energy and Capital Editor Keith Kohl shows readers the peak oil report that was lost during the economic turmoil.

The Louisiana Land Rush: Developing the Largest Gas Discovery in U.S. History
Ever wonder how the U.S. will finally eliminate its dependence on oil? Perhaps the only way is transitioning to a domestically abundant energy source like natural gas. In this special report, Energy and Capital reveals the four companies at the forefront of the greatest natural gas boom in history — putting them right at your fingertips.

The Smart Grid’s Coming Electric Economy: The Utilities’ View of the Smart Grid
Energy and Capital‘s Nick Hodge explains where our economy will go for access to cheap, reliable electricity. Of course, Nick gives investors have a head’s up on the next generation of smart grid technology.

2 Developing Gold and Silver Stocks: And a Look at the Life of a Gold Company
Wealth Daily Editor Greg McCoach looks back at the life of a successful gold company, then highlights two gold and silver stocks that could make investors a small fortune.

2010 Stock Market Outlook: A Great Start and a Troubled Finish
Editor Steve Christ gives his 2010 stock market forecast and predicts how the first and second half of the year will play-out quite differently from each other.

America’s Unsustainable Debt: 3 Charts You Must See Now
Wealth Daily Editor Christian A. DeHaemer isn’t a fan of rating agencies… and his in-depth analysis of three specific charts points investors toward just one place.

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