Category

Oil

Stable Oil Prices are the Key to Chinese Growth

Last week, oil prices dropped on concerns that Chinese demand might begin to slip.

It appears those concerns are going to be short lived.

According to a report by the IMF this morning, Chinese GDP will rebound strongly to 8.8% in 2013, up from a dip to 8.2% in 2012, propelled largely by increased domestic consumer consumption.

That's important to note since the Chinese also need reliable energy sources to continue this remarkable, ongoing boom.

After all, China needs to procure oil supplies from around the globe to facilitate this sort of growth.

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How to Beat High Gas Prices

Are high gas prices giving you road rage? Well, wait "til you see what's coming.

Prices at the pump currently average $3.89 for a gallon of regular unleaded, up 30 cents in the last month.

But it's already over $4.00 per gallon in many cities – more than double the $1.85 a gallon that prevailed when President Barack Obama took office.

And most analysts are predicting gas prices will go much higher.

The national average gas price should reach $4.25 by the end of April as refiners shift over to more expensive summer blends, Tom Kloza of the Oil Price Information Service told the Wall Street Journal.

As prices shoot through the previous high-water mark of $4.11 in 2008, filling your tank could soon hit you for $75-$90.

And the sky's the limit if Iran decides to block the Strait of Hormuz in retaliation for economic sanctions that go into effect in June.

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The Truth About $6 Gas, $200 Oil and the Quest for Energy Independence

No one needs to tell the average American about the impact of oil and gas prices. If they don't feel it in their wallets every day, they hear about it on the news every night.

But surprisingly, amid all the rhetoric, there have been no real answers to some of the key questions driving the energy debate… until now.

Is President Obama truly responsible for high gas prices, and can his opponents really bring them back down?

What role has Federal Reserve Chairman Ben Bernanke's loose monetary policy played in soaring energy costs?

Is more domestic drilling the answer?

Renowned energy expert Dr. Kent Moors answers all of these questions – and more – below.

Dr. Moors, an adviser to six of the world's top 10 oil companies and a consultant to governments around the world, also talks about the effect political turmoil in the Middle East could have on energy prices in the immediate term and how North America will gain energy independence in 15-20 years.

Here's what else Moors – a bona-fide energy expert – had to say…

Dr. Moors on Gas Prices

Can a U.S. President actually impact gas prices- at least enough to get gasoline back to $2.50 a gallon? Or is this just talk? I don't know whom to believe anymore…

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Not Even Saudi Arabia Can Save Us From High Oil Prices

With oil prices soaring ever higher, Saudi Arabia stepped in last week and vowed to increase its production by 25% if necessary.

But while that assurance managed to siphon a few dollars off of oil futures, the reality is there's nothing Saudi Arabia – or anyone else, for that matter – can do about rising oil prices.

In fact, crude is still on track to reach $150 a barrel by mid-summer.

As Saudi Oil Minister Ali Naimi pointed out last week, current oil supplies already exceed global demand by 1 million-2 million barrels per day.

For its part, Saudi Arabia is already breaking its own OPEC-imposed production quota limit, churning out about 10 million barrels of oil per day – close to its 12.5 million barrel capacity.

Yet the effect of that production has been negligible.

Oil is still trading at $106 a barrel on the NYMEX – something that has clearly flummoxed the world's largest oil producer.

"I think high prices are unjustified today on a supply-demand basis," said Naimi. "We really don't understand why the prices are behaving the way they are."

Naimi and his colleagues may not understand oil's price gyrations, but Dr. Kent Moors, an adviser to six of the world's top 10 oil companies and energy consultant to governments around the world, does.

"Despite the excess storage capacity in both the U.S. and European markets and the contracts already at sea, oil traders set prices on a futures curve," said Moors. "In a normal market the price is set at the expected cost of the next available barrel. During times of crisis, on the other hand, that price is determined by the cost of the most expensive next available barrel."

And with tensions with Iran running high, we are currently in crisis mode. Pushed to the brink by Western sanctions, Iran has threatened to close the Strait of Hormuz – the narrow channel in the Persian Gulf through which 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass.

If Iran closes the Strait of Hormuz, crude oil prices will pop by between $30 and $40 a barrel within hours. Should the strait remain closed for 72 hours, oil trading will push up the barrel price to $180 in New York, and closer to $200 in Europe.

The situation is further complicated by potential military conflict – such as an Israeli air strike on Iran's nuclear facilities.

And with indications that Iran will have the ability to develop nuclear weapons in the next 18 to 24 months, Western powers have apparently shifted their focus from halting Iran's nuclear program to sowing instability in the country with the hopes of catalyzing a regime change.

So what does that mean for investors?

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Keystone XL Oil Pipeline Project Back in Election 2012 Spotlight

U.S. President Barack Obama announced today (Thursday) approval for part of the Keystone XL oil pipeline project – but his move was more about election votes than the country's energy needs.

President Obama said he is expediting approval for the southern portion of the Keystone oil pipeline. That section runs from Oklahoma to the Texas Gulf Coast.

The president told workers in Cushing, OK today that he was making that part of the Keystone XL project a "priority." The president said he remains committed to the project and defended his earlier rejection of the pipeline.

He blamed Republicans for insisting upon an application approval deadline that caused a rushed decision.

"Unfortunately, Congress decided they wanted their own timeline," President Obama said. "Not the company, not the experts, but members of Congress who decided this might be a fun political issue decided to try to intervene and make it impossible for us to make an informed decision."

The southern segment of the pipeline, however, is already planned to start construction in June, and is not the focus of the project's controversy. In fact, more than 99% of property owners in the southern route where the pipeline will run agree to it.

Instead, the president's announcement was more politics than progress – and triggered ample criticism from Republicans.

Many GOP members bashed the president's announcement as "meaningless."

A spokesman for Rep. John Boehner, R-OH, compared the news to "the governor holding a press conference to renew my driver's license — except this announcement still leaves American energy and jobs behind."

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The "Sweet Spot": Goldman Sachs Bullish on Oil and Gas Pipeline Companies

Nothing like having Goldman Sachs (NYSE: GS) confirm what we've already been saying for a year.

But last week, Goldman Sachs reminded us that they are bullish on the oil and gas pipeline sector by upgrading a number of portfolio stocks that have been prominent features of our portfolios and discussion on the sector.

Goldman analysts made headlines last week by adding a number of pipeline firms to their "Conviction Buy" list. The company added Williams Companies (NYSE: WMB) while dropping Buckeye Partners L.P. Nonetheless, Goldman still rates Buckeye as a "Buy."

Goldman also raised a number of additional stocks to the buy list, including Plains All American Pipeline LP (NYSE: PAA), and maintained its "Buy" ratings on Enterprise Products Partners (NYSE: EPD), and Enduro Royalty Trust (NYSE: NDRO), and Magellan Midstream Partners (NYSE: MMP).

The reason for these moves shouldn't be a surprise to anyone who follows us at Oil and Energy Investor.

The Sweet Spot in Oil and Gas Pipeline Companies

It's not surprising that Goldman Sachs is so bullish on the pipeline industry. After all, my colleague Dr. Kent Moors has been touting the best known secret on the markets for more than a year.

If you want to make money in energy investing, you want to park yourself right in the middle of the supply chain. By doing so, you're far less susceptible to price fluctuations in the underlying commodity, and you are able to collect easy profits from the growing demand in fuels.

Midstream companies, those that connect the upstream exploration and production companies to the downstream retail, refining and marketing channels, provide vital services in transportation, storage, and processing.

Simply put, this is the "Sweet Spot" of energy investing.

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Marathon Petroleum Corp. (NYSE: MPC): The Best Way to Turn High Gas Prices into High Octane Profits

Average gas prices currently are about $3.75 according to AAA's Daily Fuel Gauge Report.

That's higher than the average for all of 2011, which was the priciest year ever for gasoline. And what's worse is they're only going higher from here.

But if you think that investing in oil majors will help you overcome the sting of high gas prices this summer, think again.

While prices for both gasoline and crude oil have surged more than 10% this year, stock prices for oil majors like ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) have been flat.

The dividends these companies pay won't make a dent, either.

It would take the average American something along the lines of a $20,000 investment in a stock that yields 3% to compensate for the surge we've seen in gas prices.

One reason these stocks have floundered is that the recent rise in oil prices has largely been the result of political tensions in Iran, rather than increased demand for oil.

Another is that President Obama has Big Oil subsidies in his crosshairs as he heads into this year's election.

Energy lobbyists have flooded Capitol Hill and Republicans have rallied to the defense of oil companies, but the November election will ultimately decide the fate of the $4 billion of subsidies oil majors get every year.

With so much money at stake, investors are rightfully wary of companies like Exxon and Chevron.

Still, that begs the question: If big oil stocks offer no respite from high gas prices, where can investors turn?

One solution is to invest in the United States Gasoline Fund LP (NYSE: UGA).

UGA invests in futures contracts on unleaded gasoline traded on the New York Mercantile Exchange (NYMEX). It's already up 18% this year.

But there's still an even better option, and that's

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Finally, TransCanada Corp. (NYSE: TRP) Will Build the Keystone Oil Pipeline – Sort of

Turns out the Keystone oil pipeline will be built – at least, part of it.

TransCanada Corp. (NYSE: TRP), the Calgary-based energy company trying to get the project approved, said yesterday (Monday) it would seek immediate approval to start building the southern half of the pipeline that runs from Oklahoma to Texas. That segment doesn't need a presidential permit because it doesn't cross a U.S. border.

TransCanada said the southern portion of the Keystone oil pipeline will allow Midwest oil to reach Gulf Coast refineries. There is currently a glut of oil produced in that region.

"Gulf Coast refineries can then access lower-cost domestic production and avoid paying a premium to foreign oil producers," TransCanada CEO Russ Girling said Monday.

The pipeline will carry light crude oil produced in North Dakota, Montana, Kansas, Oklahoma, and Texas. It will cost $2.3 billion and be completed in 2013. It will also create about 4,000 construction and support jobs.

TransCanada also said it would reapply for the full Keystone oil pipeline construction – a hot button issue in this election year.

Why President Obama Rejected the Keystone Oil Pipeline

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Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil

Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.

There are three reasons for this – all happening within the last week:

  1. First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
  2. Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
  3. Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.

All of this is, once again, leading to a rise in crude oil prices.

What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.

Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.

And that is what makes this both a full-blown and an intensifying crisis.

Brinksmanship in the Straits of Hormuz

So what's being done?

Washington has little – leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.

Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.

And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.

Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.

Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path…

The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.

Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.

The West is seeking a more moderate application of what will remain the Iranian cultural reality.

However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play – the Strait of Hormuz.

There has been much misinformation circulated about the strait. Here are the facts.

On any given day, 18% to 20% of the world's crude oil passes through it.

According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.

Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.

If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge – an upsurge that is already happening.

Now for the question I'm being asked several times a day in media interviews…

Just how bad can it get?

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