Featured StoryI just returned from a week down South with a few of my energy clients. It's good to get my hands dirty and remind myself firsthand what is going on at the project level of some of the country's top energy companies.
But when I returned home this weekend, I made the mistake of flicking on the television and opening the newspaper.
I can't believe that the pundits are now predicting that oil will fall to $40 a barrel. They also are projecting that the entire natural gas sector is going to collapse.
Here we go again.
Yes, we are wrestling with an energy sector that remains gun shy on elements from market volatility to geopolitical tensions.
And sure, $40 a barrel is possible, but only in an improbable situation where global demand for oil completely collapses, along with the world economy.
But we are in a new reality. And such doom and gloom predictions are highly oversimplified and potentially dangerous to you as an investor.
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Oil Prices are Higher, But It Won't Be Much Help for Alternative Energy
Normally, when gas and oil prices accelerate on both sides of the Atlantic, alternative energy sources come into focus and become a big part of that "energy independence" discussion.
Well, not this time.
During the run up to mid-$4 gas and $147 a barrel oil in 2008, many assumed these costs would continue to advance. That made alternative sources - especially renewables such as solar, wind, biofuels, and geothermal - more attractive to investors, politicians, and energy enthusiasts.
Alternative sources are more expensive than conventional oil, gas, or coal. They are, however, more environmentally friendly. Paying those higher costs was regarded as a tradeoff for cleaner energy sources and a reduction in emissions.
Today, that view has changed.
U.S. Oil and Gas Squeezes Alternative Energy ProspectsIt's part of the reason why I've recently avoided alternative energy companies like First Solar (Nasdaq: FSLR), Canadian Solar (Nasdaq: CSIQ) or SunPower Corporation (Nasdaq: SPWR) in my Energy Advantage portfolio.
The economic downturn has made reliance on more expensive energy sources a difficult proposition to accept. Renewables are hardly a convincing argument anymore, especially during a sluggish economic recovery.
Yes, increasing oil and gas prices should reduce the spread between conventional and renewable, thereby providing stronger arguments for change. And proponents argue that alternatives provide an enhanced advantage given that they can also be domestically produced.
Just don't bet on these arguments holding up this time. Here's why.
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Why a Strategic Petroleum Reserve Release Won't Help Oil Prices or President Obama
With oil prices showing no signs of retreat during the final months of the U.S. presidential campaign, beltway insiders are turning to one misguided solution to combat rising oil prices.
Releasing oil from the Strategic Petroleum Reserve (SPR).
Trial balloons floated all over Washington during the past few days. The only reason politicians didn't move on this sooner (say a few months ago) was the price level.
Until the last month or so, both oil and gasoline prices were heading in the other direction. Near-month futures contracts for West Texas Intermediate (WTI), the crude oil benchmark traded on the NYMEX, were below $78 a barrel in intraday trade toward the end of June, while the same futures for RBOB (the NYMEX traded gasoline contract) were at $2.55 a gallon.
At the time, all the sage pundits predicted that oil would fall below $60 a barrel; some even suggested that prices could approach $40. On the gasoline side, these same wise guys were proclaiming we may see prices at the pump breach $3.
Everything has changed quickly.
Yesterday morning the markets opened with WTI 23% higher than late June and RBOB up by more than 20%. Oil stands at more than $96 a barrel in New York, while Brent has exceeded $116 a barrel in London. And retail gas prices are once again approaching $4 a gallon.
Recently, I discussed why oil prices are moving up. But for some politicians, including the fellow running for reelection at 1600 Pennsylvania Avenue, those prices are becoming a job liability.
So it's back to hitting the SPR.
But there are four reasons why tapping the SPR won't make oil prices any cheaper in the end.
Maybe you should let your Congressman know about them...
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