Thursday, February 11, 2010

Crude Awakening

After a very wild couple of years, crude oil and gasoline prices appear to have stabilized somewhat.  But, will it continue? 

Crude oil has seen some fairly wide swings since 2008.  In July, the benchmark crude, West Texas Intermediate (WTIC), rose to nearly $150 per barrel and then crashed to just above $30 per barrel in December!  Since June, 2009, WTIC has mostly hovered between $60 and $80 per barrel.

I believe that the lull in crude oil is over and that we are in for a "Crude Awakening" as oil prices resume their upward march, despite the poor economy.

The International Energy Agency (IEA) raised its forecast for global oil demand this year as developing countries need more crude to fuel their economies. The IEA increased its estimate for world demand in 2010 by 170,000 barrels a day to 86.5 million barrels. That would mean a gain of 1.6 million barrels a day, or 1.8 % from 2009 levels.

Consumption growth is driven entirely by economies outside the Organization for Economic Cooperation and Development (OECD), the IEA said.  Asian economies, particularly China, will lead the increase.  Chinese oil demand is forecast to surge 4.7% this year to 8.9 million barrels a day. The outlook assumes that steps by the Chinese government to curb inflationary pressures won’t curb economic growth forecast by the IMF at 10% this year.

The recently stable price of crude is misleading.  Since December, the U.S. Dollar has appreciated 10%, thus artificially dampening any surge in the price of crude.  However, as all readers of "Marko's Take", and anyone with a brain for that matter, all know that the dollar is gonzo!  As the long-term downtrend in the dollar re-asserts itself, upward pressure on oil prices will result.

Unfortunately, it's very difficult to benefit financially on a rise in oil prices.  Normally, one might want to buy oil stocks, but that strategy is not likely to work.  The main reason is that higher oil prices and higher oil company profits will prove to be a very tempting source of revenue for our friends in Washington, D.C.

Even self-proclaimed tax-cutter Sarah Palin has passed a "Windfall Profits" tax in Alaska. 

The best way to profit from higher crude prices, in my opinion, is through the purchase of alternatives - such as uranium miners, solar companies or other energy sources whose viability will be enhanced indirectly. I would AVOID the Exxon's and Chevron's, who are companies that everyone "loves to hate".

I realize that most people aren't liquid or wealthy enough, but if you ARE able, solar panels are a great way to go, as is good old conservation.  If you've looked into solar in the past, try again.  The price of panels has dropped by nearly 40% in the last year.

Do I have to say it?  TAKE ME ON!

Marko's Take

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