ARD Closes at Record High of $37.95
Crude and Gasoline Inventories along with Events in Iran, Venezuela and Nigeria Indicate Prices Going much Higher in 2006
The drivers today were continued defiance by Iran and the increase of $0.70 in oil to $69.32. Today's intraday high in the oil markets was $69.50. Look for continued rise in the price of oil as we approach the summer driving season. Last year we didn't get the rise of crude oil in anticipation of the summer driving season until mid May of 2005. Last year at this time we didn't have the political problems in Iran, Venezuela and Nigeria.
Examination of U.S. Crude Oil Inventories
It is very evident to me that yesterday's rise in crude inventories is in part due to the desire of the oil industry to continue to buy oil for their refineries now while prices are relatively low than to buy them in the future when they will be higher. While the facts are that holding oil in inventory is expensive, it will certainly cost the oil companies even more to buy the crude a month from now. Certainly the oil industry would refrain from taking on added crude inventories above and beyond the normal range if they thought the price of oil was going lower. Also, it is no coincidence that U.S. Crude oil stocks are significantly higher than their average range. One need only go back in time to the oil panic of 1979 and 1980. The same phenomenon also occurred in the oil shock of 1973-74. Back then oil companies were increasing oil stocks well in excess of their current needs. This was done simply as insurance in case there were problems later on in acquiring oil supplies. Take another look at the U.S. Crude Oil Stocks chart. Do you notice how the monthly inventories have been above the normal range for the last 12 months? Do you notice how the weekly stocks are getting further and further from the normal range?
Examination of Gasoline Inventories
While crude inventories are building upstream due in large part to expectations of higher prices in the future so is true with the expectations of higher prices by the consumer. The news media hits the average U.S. citizen with a barrage of information that we should expect higher gas prices at the pump. Consumers are also worried about higher prices and are also building their inventories by keeping more gas in their tanks. It would make sense for consumers to fill the tank up today while the prices are lower instead of tomorrow or next week when they are higher. This phenomenon also occurred during the oil shocks of 1973-74 and 1979-80. While today's motorist are by no means in a panic they are certainly thinking about keeping the tank as full as possible for the least amount of money.
It is amazing that as gas prices have risen since February the gasoline inventories have actually declined. There certainly is no demand destruction at current prices. Certainly the phase out of the additive MTBE is a factor in declining gasoline stocks. I think to a larger degree we are seeing prices rise due a combination of consumer expectations of rising gas prices and increased consumption. The chart "Regular Gasoline Prices" depicts the prices in 2005-06 as indicated by the red line as being consistently higher than the prices of 2004-05. If you extend the line for the current year out to the beginning of May it seems we will have to endure gas prices over $3.00 a gallon.
You Ain't Seen Nothing Yet!
With realistic expectations of $3.00 a gallon by May I think the summer driving season will surely push the average price of a gallon over $4.00 nationwide. Back in February I called for an average realized price of $70 for crude oil. Oil at that price could end up being a bargain. Consider that a nuclear Iran is a problem infinitely larger than the 50 Americans taken hostage on November 4, 1979 and held for exactly 444 days. Also consider that as a result of the siege of the U.S. Embassy in Tehran and the taking of hostages a panic in oil prices pushed oil from about $14 a barrel to over $36 a barrel in a period of weeks. Therefore, $100 a barrel is a real possibility before yearend considering all the problems of a nuclear Iran, that consumption (demand) is higher today than it was in 1979 yet the worlds largest producer of crude oil, Saudi Arabia, is producing less oil today than back in 1980. In 1980 Saudi Arabia average daily output was 9.9 million barrels per day. Compare that to 2005 production of 9.55 million barrels per day and factor in that there are more problems with the Saudi oil fields today than there were 26 years ago. It should be quite evident that oil and gas prices are going higher, much higher. Keep in mind that back in 1980 there was no wave of demand for petroleum coming from China and India like there is today.
You ain't seen nothing yet!
The purchase of ARD shares today is the best way to take advantage of the rising oil prices. As oil and gas will surely be more expensive in the coming weeks and months so too will shares of ARD. Many investors, including wallstreet will be looking at shares of oil and gas companies the same way they think about keeping their gas tanks full in their automobile. The herd will be coming to oil and gas stocks most certainly. Humans invest based on fear and greed. Investors will be buying shares of oil companies based on fear of being left behind and also based on greed and wanting to take advantage of the upward momentum that will most certainly ensue. Investment in quality oil and gas companies such as ARD will yield returns and profits that will dwarf that of even the most successful internet companies at their peak.
You ain't seen nothing yet!
Crude and Gasoline Inventories along with Events in Iran, Venezuela and Nigeria Indicate Prices Going much Higher in 2006
The drivers today were continued defiance by Iran and the increase of $0.70 in oil to $69.32. Today's intraday high in the oil markets was $69.50. Look for continued rise in the price of oil as we approach the summer driving season. Last year we didn't get the rise of crude oil in anticipation of the summer driving season until mid May of 2005. Last year at this time we didn't have the political problems in Iran, Venezuela and Nigeria.
Examination of U.S. Crude Oil Inventories
It is very evident to me that yesterday's rise in crude inventories is in part due to the desire of the oil industry to continue to buy oil for their refineries now while prices are relatively low than to buy them in the future when they will be higher. While the facts are that holding oil in inventory is expensive, it will certainly cost the oil companies even more to buy the crude a month from now. Certainly the oil industry would refrain from taking on added crude inventories above and beyond the normal range if they thought the price of oil was going lower. Also, it is no coincidence that U.S. Crude oil stocks are significantly higher than their average range. One need only go back in time to the oil panic of 1979 and 1980. The same phenomenon also occurred in the oil shock of 1973-74. Back then oil companies were increasing oil stocks well in excess of their current needs. This was done simply as insurance in case there were problems later on in acquiring oil supplies. Take another look at the U.S. Crude Oil Stocks chart. Do you notice how the monthly inventories have been above the normal range for the last 12 months? Do you notice how the weekly stocks are getting further and further from the normal range?Examination of Gasoline Inventories
While crude inventories are building upstream due in large part to expectations of higher prices in the future so is true with the expectations of higher prices by the consumer. The news media hits the average U.S. citizen with a barrage of information that we should expect higher gas prices at the pump. Consumers are also worried about higher prices and are also building their inventories by keeping more gas in their tanks. It would make sense for consumers to fill the tank up today while the prices are lower instead of tomorrow or next week when they are higher. This phenomenon also occurred during the oil shocks of 1973-74 and 1979-80. While today's motorist are by no means in a panic they are certainly thinking about keeping the tank as full as possible for the least amount of money.
It is amazing that as gas prices have risen since February the gasoline inventories have actually declined. There certainly is no demand destruction at current prices. Certainly the phase out of the additive MTBE is a factor in declining gasoline stocks. I think to a larger degree we are seeing prices rise due a combination of consumer expectations of rising gas prices and increased consumption. The chart "Regular Gasoline Prices" depicts the prices in 2005-06 as indicated by the red line as being consistently higher than the prices of 2004-05. If you extend the line for the current year out to the beginning of May it seems we will have to endure gas prices over $3.00 a gallon.You Ain't Seen Nothing Yet!
With realistic expectations of $3.00 a gallon by May I think the summer driving season will surely push the average price of a gallon over $4.00 nationwide. Back in February I called for an average realized price of $70 for crude oil. Oil at that price could end up being a bargain. Consider that a nuclear Iran is a problem infinitely larger than the 50 Americans taken hostage on November 4, 1979 and held for exactly 444 days. Also consider that as a result of the siege of the U.S. Embassy in Tehran and the taking of hostages a panic in oil prices pushed oil from about $14 a barrel to over $36 a barrel in a period of weeks. Therefore, $100 a barrel is a real possibility before yearend considering all the problems of a nuclear Iran, that consumption (demand) is higher today than it was in 1979 yet the worlds largest producer of crude oil, Saudi Arabia, is producing less oil today than back in 1980. In 1980 Saudi Arabia average daily output was 9.9 million barrels per day. Compare that to 2005 production of 9.55 million barrels per day and factor in that there are more problems with the Saudi oil fields today than there were 26 years ago. It should be quite evident that oil and gas prices are going higher, much higher. Keep in mind that back in 1980 there was no wave of demand for petroleum coming from China and India like there is today.
You ain't seen nothing yet!
The purchase of ARD shares today is the best way to take advantage of the rising oil prices. As oil and gas will surely be more expensive in the coming weeks and months so too will shares of ARD. Many investors, including wallstreet will be looking at shares of oil and gas companies the same way they think about keeping their gas tanks full in their automobile. The herd will be coming to oil and gas stocks most certainly. Humans invest based on fear and greed. Investors will be buying shares of oil companies based on fear of being left behind and also based on greed and wanting to take advantage of the upward momentum that will most certainly ensue. Investment in quality oil and gas companies such as ARD will yield returns and profits that will dwarf that of even the most successful internet companies at their peak.
You ain't seen nothing yet!
posted by -Aztec- at 1:55 PM
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