Energy Investing: The Surprise That Wasn't
By Adam Lass
Taipan Financial News
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In this article:
Additional surpluses of oil and gasoline supplies are down 5.1% from a year ago.
Demand for oil continues to increase with our lifestyle choices.
Big oil companies like Chevron (CVX: NYSE) will continue to print money like they owned the mint.
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“Import dynamics caused surprises in inventory changes. Lower crude and gasoline imports engendered a surprise draw in crude inventories and a larger-than-expected gasoline draw.” -- Wachovia’s Jason Schenker (via Dow Jones’ Market Watch)
Most analysts were expecting today’s energy reserves report to reveal the third consecutive weekly increase in crude oil and gasoline supplies. Boy were they wrong: instead of additional surpluses the U.S. EIA warned that levels are actually down some 5.1% from a year ago.
The source of the troubles this time around? Seems that there have been delays at the Houston Ship Channel, resulting in a 650,000 barrel-per-day decline in average crude imports.
Energy Investing: Supplies Stretched Thin
As some of the dimmer folk around Mayberry used to say: “Well surprise, surprise, surprise.” Seems that this reversal of fortune came as a shock to most everyone but you and I, dear reader.
The reason we were not shocked is that we knew that something always comes along to interrupt supply -- a storm, a strike, terrorists, a war, a traffic jam at Third and Main, whatever! And it always takes these guys “by surprise.”
I have been saying for weeks, nay, months (and reiterated as recently as last Monday) that energy supplies were stretched thin and demand was hard-wired into the system. For six decades, we have bought larger and larger houses, further and further from work, and commuted back and forth in enormously inefficient cars.
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Energy Investing: Demand Continues to Ramp Up
This is a fact that cannot and will not be changed overnight. Maybe you might think about better windows or trading out one of your two SUV’s for a Honda Civic. But you can’t get a contractor to come in till spring, and you probably owe more on the Escalade than it’s worth, so that will have to keep a while too.
Thus dies the concept of elastic demand that we will use less fuel when price goes over a key level, like $60 a barrel or $2.35 a gallon. Sure, we all can adjust some. This year, for example, we skipped the annual Christmas pilgrimage to New York City. But in the end, I just had to fly Mom and the kids to Orlando in February to make it up to them.
And no matter what happens to gasoline reserves, I still have to drive into the office Monday through Friday. (Telecommuting just doesn’t seem to really work for me: “Honey, what are you doing?” “Research on the ’net, dear.” “Well as long as you aren’t working, could you help me shave the dog?”)
Energy Investing: Buy Chevron (CVX: NYSE)
Simply put: we are going to keep on using petroleum distillates for the foreseeable future. What’s more, we will use more, not less, and that rate of increase will increase: Current estimates slate global-oil demand to increase by over 1.6 million barrels a day in 2007, compared with a growth rate of 800,000 barrels a day in 2006.
This is not a polemic. I am not saying this is a good or bad thing, or whether such unabashed pursuit of the good life is our inherent right. That is a discussion for another day (or most likely another night, after the kids are in bed and we can break out some single malt scotch I’ve been saving.)
I am stating categorical facts: Oil will not get cheaper anytime soon, gas will not go back below $2 a gallon, and big oil companies like Chevron (CVX:NYSE) will continue to print money like they owned the mint, making them a particularly great buy right now, especially after the recent 5% market rerating.
Adam
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Related Links
Energy Investing: Get on board big oil now, because it will go up this summer, guaranteed.
Energy Investing: Expectations are that the gas market will test $8/MMBtu in coming days, with strength spilling over into crude futures to boot.
Related Resources
Energy Outlook: The government’s latest energy supply and demand forecast (so that you won’t be surprised).
Energy Stocks: Track Chevron’s price movements (via Yahoo!Finance)