Profit from the Oil RollerCoaster
While Others are Panic Selling You Should be Panic Buying
Let's face it, oil is volatile. It will be especially volatile as we transition from the shoulder season into the summer driving season/hurricane season. As much as oil is plunging from the peak of about $75 a couple weeks ago it will spike higher by an equal or greater amount when the traders start to worry about oil supplies being outstripped by demand. Why should investors in fact be "panic buying" instead of "panic selling?"
OPEC Limits Downside Risk at $60 per Barrel
OPEC will no doubt begin to defend the price of oil as it nears $65 a barrel. Recently we have witnessed OPEC making bearish statements regarding oil when it was in the $70s. Certainly they do this because they want to prevent the price of oil from going too high. That would encourage countries to look seriously at an alternative for oil. OPEC would prefer to keep the world hooked on their oil.
On the other hand OPEC does not want oil to fall below the magic $60 per barrel mark as that would not only decrease revenues but also provide incentive for massive increases in demand worldwide. We already know that OPEC has a hard time meeting current worldwide demand. Any sizeable increase in demand would cause shortages and ultimately shortages and spikes in the price of oil. That would put us back to square one again: countries looking for ways to reduce reliance on OPEC oil. Therefore, if oil goes below $65 look for OPEC to make statements that would put a floor on the price at the $60 level.
No Demand Destruction in the United States
We have witnessed that there has been no demand destruction in the U.S. even though prices are higher when compared to the year ago period. In the chart entitled, "U.S. Gasoline Demand" it should be noted that this years demand is the red dotted line. Year ago demand is the dotted blue line. To be precise the demand for the week ending May 13, 2005 demand was 9.269 million barrels per day. In contrast, the current demand for the week ending May 12, 2006 was actually higher: 9.327 million barrels per day. This speaks volumes about not only the U.S. appetite for oil but also the willingness to pay more for gas no matter what. If American's can spend $20,000 to $40,000 for their gas guzzling SUVs and light trucks they can afford the gas, even if it goes up significantly. In 2005 according to Autodata SUV and light truck sales comprised 54.7% of all autos sold in the U.S. This is down less than 1 percent from 2004 even though the average price of gasoline and diesel rose from $1.85 in 2004 to $2.27 in 2005. This represents an average increase of 22.7% at the pump from 2004 to 2005. Is this amazing or what. I am fully expecting consumers to continue their love affair with light trucks and SUVs even as the average gasoline and diesel prices rise again in 2006.
Chindia Demand Underestimated
Combined these two countries will push demand higher than supplies. This may occur even before we reach peak oil if in fact we have not already achieved peak oil. This will in effect cause peak oil like symptoms earlier than most expect. Afterall, a shortage is a shortage is a shortage. Don't confuse the shortages to be caused in 2006 and 2007 to be the same as those of the 1970's. The shortages in the 1970's were caused by geopolitics and shutting off the oil at the wellhead. The shortages today will be the result of real shortfalls in supply even though the oil wellheads worldwide are wide open or nearly so.
Many skeptics will say that the shortages of today are just like the shortages of the 1970's. The oil industry will continue to downplay any shortages and state that peak oil is decades away. Why would the oil industry want to fool the public and governments into thinking that peak oil is far away? Money and investments in the current energy economy are the reason. The next energy economy will require trillions in investments. This is why ExxonMobil feels the way they do about the topic of "Peak Oil."
To conclude, we have not even covered other many important factors that will put a floor on oil in the $60s most notable the nuclear standoff in Iran and other unstable governments like Nigeria and Venezuela that control a large percentage of worldwide oil production. Investors should be panic buying at these prices, not panic selling. Those who panic buy will be rewarded handsomely. Those that panic sell don't see the real picture and will be penalized. No doubt ownership in shares of a superior company like Arena Resources will involve a bumpy ride. However, in the end ownership of the shares will reward those who hold longterm.
While Others are Panic Selling You Should be Panic Buying
Let's face it, oil is volatile. It will be especially volatile as we transition from the shoulder season into the summer driving season/hurricane season. As much as oil is plunging from the peak of about $75 a couple weeks ago it will spike higher by an equal or greater amount when the traders start to worry about oil supplies being outstripped by demand. Why should investors in fact be "panic buying" instead of "panic selling?"
OPEC Limits Downside Risk at $60 per Barrel
OPEC will no doubt begin to defend the price of oil as it nears $65 a barrel. Recently we have witnessed OPEC making bearish statements regarding oil when it was in the $70s. Certainly they do this because they want to prevent the price of oil from going too high. That would encourage countries to look seriously at an alternative for oil. OPEC would prefer to keep the world hooked on their oil.
On the other hand OPEC does not want oil to fall below the magic $60 per barrel mark as that would not only decrease revenues but also provide incentive for massive increases in demand worldwide. We already know that OPEC has a hard time meeting current worldwide demand. Any sizeable increase in demand would cause shortages and ultimately shortages and spikes in the price of oil. That would put us back to square one again: countries looking for ways to reduce reliance on OPEC oil. Therefore, if oil goes below $65 look for OPEC to make statements that would put a floor on the price at the $60 level.
No Demand Destruction in the United States
We have witnessed that there has been no demand destruction in the U.S. even though prices are higher when compared to the year ago period. In the chart entitled, "U.S. Gasoline Demand" it should be noted that this years demand is the red dotted line. Year ago demand is the dotted blue line. To be precise the demand for the week ending May 13, 2005 demand was 9.269 million barrels per day. In contrast, the current demand for the week ending May 12, 2006 was actually higher: 9.327 million barrels per day. This speaks volumes about not only the U.S. appetite for oil but also the willingness to pay more for gas no matter what. If American's can spend $20,000 to $40,000 for their gas guzzling SUVs and light trucks they can afford the gas, even if it goes up significantly. In 2005 according to Autodata SUV and light truck sales comprised 54.7% of all autos sold in the U.S. This is down less than 1 percent from 2004 even though the average price of gasoline and diesel rose from $1.85 in 2004 to $2.27 in 2005. This represents an average increase of 22.7% at the pump from 2004 to 2005. Is this amazing or what. I am fully expecting consumers to continue their love affair with light trucks and SUVs even as the average gasoline and diesel prices rise again in 2006.
Chindia Demand Underestimated
Combined these two countries will push demand higher than supplies. This may occur even before we reach peak oil if in fact we have not already achieved peak oil. This will in effect cause peak oil like symptoms earlier than most expect. Afterall, a shortage is a shortage is a shortage. Don't confuse the shortages to be caused in 2006 and 2007 to be the same as those of the 1970's. The shortages in the 1970's were caused by geopolitics and shutting off the oil at the wellhead. The shortages today will be the result of real shortfalls in supply even though the oil wellheads worldwide are wide open or nearly so.
Many skeptics will say that the shortages of today are just like the shortages of the 1970's. The oil industry will continue to downplay any shortages and state that peak oil is decades away. Why would the oil industry want to fool the public and governments into thinking that peak oil is far away? Money and investments in the current energy economy are the reason. The next energy economy will require trillions in investments. This is why ExxonMobil feels the way they do about the topic of "Peak Oil."
To conclude, we have not even covered other many important factors that will put a floor on oil in the $60s most notable the nuclear standoff in Iran and other unstable governments like Nigeria and Venezuela that control a large percentage of worldwide oil production. Investors should be panic buying at these prices, not panic selling. Those who panic buy will be rewarded handsomely. Those that panic sell don't see the real picture and will be penalized. No doubt ownership in shares of a superior company like Arena Resources will involve a bumpy ride. However, in the end ownership of the shares will reward those who hold longterm.
posted by -Aztec- at 9:35 AM
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