And just like that, OPEC gets another $10 bill in its collective pocket…
With each barrel sold for September delivery OPEC’s oil producing nations are pocketing an extra 10-spot of “fear premium.”
Sure, Saudis (for example) don’t want to see a complete meltdown in Egypt. But… a partial meltdown that spurs the price of oil to new yearly highs? I bet it’s a welcome site for some. Considering the $10 jump in prices, Saudi Arabia is pocketing an extra $70 million a day — that’s real, hold-in-your-hand cash from perceived disruptions.
But we’d be foolish to think this boost in prices isn’t helping some of our own domestic producers as well…
How’s the saying go? If you can’t beat em, join em?
Well, in the global oil patch it looks like OPEC is getting its way. The price of oil found its latest round of support above $100. Indeed, even with the best of intentions, and data(!), your editor’s forecast for a drop in oil prices is still a ways off.
In short, there’s still a load of fundamental reasoning that says the oil market is well supplied and prices are due for a short-term pullback. But rationale be damned!
Another round of the Middle East effect, this time in the form of an Egyptian revolution, has taken prices on a rocket ride above the psychological $100-mark — a first for 2013.
Last time Egypt showed its penchant for revolt prices jumped even higher. That was back in early 2011 and oil prices rallied to $113 a barrel.
Regardless of the reason for the rise, prices aren’t likely to plummet in quick order. For example, following the price action for 2011, it took nearly six months for prices to find the bottom of the trough — in October of that year prices fell to $75 a barrel.
For prices to start heading substantially lower we’ll need a fire brigade to put out the flare-ups in the Middle East — namely, Egypt and Syria. As you would assume, those are tough blazes to battle.
Meanwhile, there’s still a safe way to play this bump in oil prices. Back in 2011, I gave you some insight that still rings true today.
Back in the early spring of 2011, just days after the ousting of Egypt’s president, Hosni Mubarak, I was witness to a new revolution, here at home…
With my boots on the ground in West Texas, I was witness to some of the first major strides in a huge, Texas-wide, shale oil revolution. That is, although many folks thought the Texas oil patch was all but dry, companies like Chevron Corp. (CVX) were making huge strides with new technologies. Here’s what I wrote back then:
“Truly, we’re in a deceiving renaissance for oil recovery in the U.S — and Chevron is beginning to set the new standard for enhanced domestic oil recovery. New technology like 3-D seismic imaging, CO2 injection, computer automation, hydraulic fracturing and directional drilling has begun to move the oil needle in the right direction.”
So you see, while a social revolution was flaring up in the Middle East, a technological revolution was getting underway here in the states.
The timing of America’s energy revolution couldn’t have been better. At a time when oil prices were creeping higher and our economy was trying to dust itself off — a domestic supply of safe and affordable oil was a welcome site indeed!
Here in the summer of 2013, Egypt’s revolution is flaring back up and America’s energy revolution is in full swing. And with $100 oil flashing across our screen, there’s several ways to play this scenario.
Grabbing a handful of domestic oil producers is your best way to play this situation.
You see, just as OPEC gains when the price of oil shoots above $100, so do domestic oil producers. Each day over $100 or in the high-90s allows domestic producers to increasing their margins. Increased margins and cash flow, as we’ve seen so far this year, will increase share price and allow companies to continue paying substantial dividends.
And here’s the kicker…
Two years since the first Egyptian revolt, U.S. oil producers have truly hit their stride. Efficiencies are kicking in and breakeven prices for U.S. oil are headed lower — places like North Dakota’s Bakken and Texas’s Eagle Ford and Permian Basin are booming! That is, while in 2011 the verdict was still out for the profitability of U.S. shale oil, today we know that efficient producers can make a killing.
Lower drilling costs, shorter drill time, ample carry away capacity, downstream markets for natural gas liquids (NGLs) and various other factors are leading to a lot of opportunity in America’s oil patch.
Getting your piece of the action is easy too. The same big players that we talked about in 2011 — Chevron (CVX), Exxon (XOM) and ConocoPhillips (COP) — all offer a slow and steady way to play this boom.
Every day with oil over $100 is icing on the cake for these producers — better yet, even with a pullback these far-from-marginal producers will still turn a profit.
Keep your boots muddy,
Matt InsleyOriginal article posted on Daily Resource Hunter
"Invest in what?" is the eternal question. Well, oil and precious metal prices have strengthened recently. Is this a revival of previous long-term uptrends? Is something fundamental going on with hard, "real" assets? Or is the newfound strength for oil, gold and silver merely a reflection of ongoing tensions in the Middle East -- Egypt and Syria, foremost?
Matt Insley is the managing editor of The Daily Resource Hunter and now the co-editor of Real Wealth Trader and Outstanding Investments. Matt is the Agora Financial in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics. Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department. Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.
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