Profiting Off Oil's Comeback

Keith Kohl

Written By Keith Kohl

Posted March 13, 2010

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

What goes up must come down, right?

That old adage crossed my mind more than a few times this week. And for the last ten months, it’s been a perfect fit for the oil markets.

After all, how many times have you watched crude oil bob between $65 and $80 per barrel since last June? Once crude prices broke $83 per barrel on Wednesday, it was only a matter of time before the drop… or was it?

Although oil prices declined nearly 2% on Friday and consumer confidence numbers took a hit, it’s difficult for me to fell too bearish.

It’s true that OPEC will maintain their production quotas. But let’s be honest, was it really surprising for you to hear that OPEC was comfortable with crude oil trading over $80 per barrel?

Of course not. It’s the same song and dance we’ve been hearing for the last year: the organization has made it clear that their existing quotas will remain untouched when prices are this high.

Then again, when was the last time you saw OPEC members not fudge the numbers? Members couldn’t even follow their own rules when oil prices collapsed to $33 per barrel in 2008.

So, are we preparing for the drop?

The question is whether the price of oil can find its legs above $80 per barrel. According to the analysts at Goldman Sachs, the oil price range in 2010 will rise between $85 and $95 per barrel.

That might very well take place during the upcoming week.

Yesterday, the IEA raised its oil demand forecast this year. World demand is expected to reach 86.6 million barrels per day — nearly 2% above 2009 consumption levels.

Naturally, all eyes are on Chinese demand, which jumped 28% year-over-year in January. Okay, so they haven’t reached our level of oil gluttony… yet. Chinese demand is expected to reach 9 million barrels per day in 2010.

Here are several other stories that crossed my desk this week:

  • On Thursday, Alberta’s government announced changes to its oil and gas royalty structure. As you know, the Alberta oil and gas royalty changes have been a contentious topic for the oil and gas industry for a long time.

  • Here’s a brief rundown of a few changes: The maximum royalty rate for conventional and shale natural gas wells will be cut from 50% to 36%, while maintaining an incentive from 2009 that reduced the royalty rate on new natural gas and conventional oil wells to 5% for one year.

  • Europe’s largest oil and gas company, BP, shelled out $7 billion for Devon Energy’s assets in exploration rights in Brazil, the Gulf of Mexico, and Azerbaijan.

  • Closer to home (for myself, at least), Virginia Governor Bob McDonnell signed two offshore drilling bills. As you can expect, we’re going to see a ton of opposition long before the first drilling rigs are set in place. According to the bill, drilling will only be able to take place more than 50 miles off the state’s coast.

Enjoy your weekend,

keith kohl

Keith Kohl

Energy and Capital

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

Bakken Oil Stocks: The Mistake that Could Make Us a Fortune
Everyone underestimated the Bakken oil formation. Even the USGS overlooked its potential in 2008, when their Bakken survey reported that there could be up to 4.3 billion barrels of recoverable oil. As it turns out, there’s actually more oil in the Bakken than we’d ever thought possible… Energy and Capital explains why now it’s time to make some real profits.

Unconventional Natural Gas Investments: Unconventional Wisdom for Investors
Energy and Capital Editor Keith Kohl offers readers some advice before making their next natural gas investment. It’s only a matter of time before the unconventional gas plays break wide open.

The Death of Death: Trading One Overlooked American Biotech
There’s no denying it — disease is the world’s #1 killer. The alarming part is that disease is so common, you hardly ever hear about it in the news. In this free report from Energy and Capital, you will learn about one small American biotech company that’s boosting both your immune system and your portfolio.

The Global Energy Race: The Countries Keeping Their Energy Dollars
Energy and Capital Editor Nick Hodge explains developing countries are at the forefront of the energy race. All the while, one country is aggressively stockpiling its energy reserves. Find out how you can profit alongside their race for energy.

Investing in the Biotechnology Industry: How to Catch the Big Wave in Biotech
Wealth Daily Editor Steve Christ makes his latest move in the burgeoning biotechnology industry. After careful analysis of several biotech stocks, Steve’s conclusion could point you toward your next biotech winner.

An Overview of the Alzheimer Drug Market: A Pro’s Take on the Future of Pharma
Publisher Brian Hicks sheds light on last week’s failed Phase III trial of Medivation’s Alzheimer’s drug.

The Best Stock to Own in the Next Oil Boom: 4 Reasons the Price of Oil Will Continue to Rise
Energy and Capital Editor Christian DeHaemer explains to readers the four reasons the price of oil is going to keep moving up, and the one stock you want to own to profit from it…

How to Rebuild America: The New Road to Energy Sustainability
In his report "How to Rebuild America," Editor Chris Nelder writes a letter to Congress on behalf of the American people, asking for a real energy plan…

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