The Misunderstood Link Between Oil, Natural Gas and Inflation
According to conventional wisdom, there can't be a significant rise in inflation without a corresponding, and usually preceding, jump in energy prices.
In fact, the correlation between energy prices and inflation has become almost a mantra among some market pundits.
Unfortunately, the reality is somewhat different than what's portrayed by talking heads in thirty- second sound bites.
As with most complicated problems, the answer just isn't that simple.
While the energy sector stretches from hydrocarbons, through alternatives, to the renewed interest in solar, wind, geothermal and biofuels, it is the dominant force in the sector that tends to drive the markets.
That means crude oil and natural gas.
The Best Investments for the Next Phase of the U.S. Oil Revolution
The U.S. oil industry has been reborn, with oil flowing from new fields like North Dakota's Bakken at rates not dreamed of just a few years ago – and it has created a new crop of best investments for those hunting for energy profits.
U.S. oil production climbed from a low of 5 million barrels a day in 2008 to 7.2 million barrels per day in February of this year.
How to Invest in Oil in 2013: The New U.S. Profit Plays
The latest annual Statistical Review of World Energy from energy giant BP PLC pointed out how the U.S. energy landscape has changed in just a few short years – which changes how to invest in oil for maximum profits.
In the Review, BP said that the expansion of both oil and natural gas production in the United States was the fastest in the world in 2012.
In fact, U.S. oil production in 2012 grew at the quickest pace since BP began keeping track of the global oil scene in 1965.
The increase of about one million barrels per day was due, of course, to the exploitation of unconventional sources such as shale and tight oil.
Pair the increasing production numbers with where oil prices will be trading in the near term, and we get a clearer picture of how to invest in oil in 2013… here's why.
Why the Fed's QE Policy is Bullish for Oil Prices
Recently, I talked about how crude was beginning to occupy a position as a store of market value ("Why Oil Is Becoming the New 'Gold Standard," May 20, 2013). The development has been a direct consequence of the flight from holding gold.
That flight may be tapering and a new floor established for the next major spike by the metal.
The problem is there is no agreement on which direction that move will be…
These days, a sudden improvement in gold prices may only extend as far as hedge funds and institutional investors covering shorts.
Nonetheless, there is an interesting parallel developing between the plight of gold and crude oil prices.
Nigeria is Caught in A Deadly Oil Catch-22
Nigeria generates more than 14% of its GDP from oil exports. Those exports account for 98% of the country's export earnings, and close to 83% of federal government revenue. Nigeria may more than 22 billion barrels in proven reserves, according to the United States Energy Information Administration. Nigeria is the tenth-most oil rich nation on Earth, with 159 oil fields and about 1,481 oil wells in operation.
The numbers look more than promising. On paper, this country should be a prime destination for investment dollars and oil development. So why is Nigeria's natural petroleum wealth on the verge of destroying a large part of the country?
This is a troubling situation in which there's no clear bad guy. The Nigerian federal government, multinational oil companies, and disadvantaged locals are all bad actors in some way.
Are the "Special Few" Manipulating Oil Prices?
Last week, a firestorm hit the markets.
In a shocking announcement it was discovered that a "special list" of users had been paying a fee to Thomson Reuters to receive the University of Michigan Consumer Sentiment Index figures two seconds early.
And while most market analysts were aware that there are several tiers of service available for these figures, only a select few knew a higher payment could get them the figure before it is released.
Two seconds. It may not seem like much but it's enough to trigger a massive spike in computerized transactions before the market even knows what the figure is–let alone the average investor.
So what difference does a such a brief leg up to a "special few" mean anyway?…
Quite a bit given what we know about today's computer-generated mega trading programs that make big profits on fractional changes in price.
The massive volume of these transactions destabilize trading environments, cause instantaneous volatility spikes, and drive a range of results having nothing to do with fundamentals or actual conditions.
Not to mention how it all flies in the face of the idea free exchange markets are justified on the outmoded assumption that there is equal access and availability of information.
Now there are possibly even more serious questions emerging and they involve a matter directly relevant to you.
We are learning the same manipulation may be occurring in the energy sector.
This Pipeline Will Make Investors More than Keystone Ever Could
Look for the Obama administration to delay its Keystone Pipeline decision until after the 2014 election as it's preoccupied by ongoing scandals and the debate about fracking in the United States.
With House and Senate Democrats now vulnerable over these scandals and Obamacare costs, the President is expected to appease his base and continue to double down on alternative energy projects at the Department of Energy.
That isn't great news for investors, since alternative energy projects under this administration have led to bankruptcies, liquidation, and a lot of investigations into cronyism among donors and the Energy Department.
But for all the talk about the Keystone Pipeline, we've been looking at another pipeline currently in the works that has the potential to make investors a lot of money in the coming years.
In fact, this pipeline could provide more upside to U.S. energy development than the Keystone Pipeline.
And it's one that has completely slipped off the radar with everything happening in Washington.
These Oil Stocks Are the Big Winners in This Year's "Summer Pop"
I have been "in the field" for the past several days and will be back in circulation later this week. But I wanted to send you a note on what's been taking place recently.
The last two trading sessions have seen a spike in oil stocks. The rise has been focused on companies that provide services to early-stage field development, as well as for crude production.
Now, we have witnessed a similar "summer pop" in each of the past three years. It tends to signal a rise in expected medium-term demand for both crude oil and oil products.
However this time around, the improvement isn't reflected in companies across the board, but rather in those emphasizing geographically specific field plays.
How to Invest in Oil's Final Frontier: The Arctic
Investors searching for how to invest in oil in 2013 should be focused on these latest developments from the Arctic.
In fact, countries are racing to get a piece of what could be the final frontier for oil…
As ice melts in the Arctic region, oil and gas trapped beneath the water becomes more accessible.
Money Morning Global Energy Strategist Dr. Kent Moors recently explained to Money Morning members about the search for Arctic oil and gas.
He spoke about the years-in-the-making U.S. Geological Survey's Circum-Arctic Resource Appraisal. The study found that 84% of the total undiscovered oil and gas left on the planet is located above the Arctic Circle, mainly offshore and in three huge basins that lie under shallow seas.
Why Oil Is the New "Gold Standard"
Something very interesting just happened at the 2013 MoneyShow in Las Vegas.
The purveyors of doom and gloom were all still hawking their services there. But the primary solution they offer – a cure-all elixir for everything that ails markets – was beginning to wear thin.
The usual conviction that this one asset is the remedy was gone. And the seats at these sessions were only half-filled.
Indeed, gold is beginning to lose its luster.
The erstwhile commodity fix has been under pressure of late as well. Yet, even while most eyes have been on declining commodities – especially gold, silver, and platinum – something else has been happening.
Crude oil is emerging as a new replacement to reflect stored market value.
That is good for folks like us who invest in the energy sector, because it will provide a floor to downward pressures in oil prices. It will not counter all forces reducing the price of oil, but it is likely to temper such movements, allowing us some leverage.