WTI Crude is at $105.77. Brent Crude is at $108.14.
Despite the rapid gains in U.S. oil production (up 48% since 2008), the price remains high.
On the surface, this doesn’t make a lot of sense…
Oil companies have been hard hit over the past few years as supply threats and a global slowdown pointed to falling demand. U.S. demand has fallen to 8.7 million barrels a day, the lowest level in a decade. Globally, however, demand is rising. The IEA expects global oil demand to rise 8% by 2018.
That said, the voracious money printing by the global central banks, trouble in the Middle East, and the high cost of fracking mean oil prices remain at high levels in spite of the economic malaise.
A recent report put the cost of a new well worldwide at $92 a barrel (excluding OPEC and Russia). That’s a lot of money.
We may not have Peak Oil, but the facts seem to state we have surpassed Peak Cheap Oil…
OPEC Gets Desperate
Meanwhile, Saudi Arabia has cut production down 600,000 barrels a day from last year. And Iran is off 400,000 bpd due to sanctions.
OPEC said if global oil demand slows, it will cut production further in December. OPEC expects this to happen, as they have cut their estimate of the demand for crude in 2017 to 29.99 million bpd. This is down 1.22 million bpd from previous estimates.
Saudi Arabia needs at least $72 a barrel to balance its budget. After all, the House of Saud has more than 15,000 princes with extravagant spending habits.
Floor in Oil: $98
For the past year, the price of oil has been in a tight range between $85 and $98 a barrel.
Resistance becomes support and the new floor in oil is now $98.
In the past month, the price of oil has broken out of this range to the upside. Meanwhile, global oil companies have been flat. The Global Energy ETF (NYSE: ICX) has been bouncing between $38 and $40.
The smaller companies that explore for oil, the wildcatters and junior producers, have been knocked down 30% to 60% over the past year.
411% Gains
Last year in my trading service Crisis and Opportunity, my readers banked as much as 411% in an oil explorer called Africa Oil as the stock rallied from $2 to over $10. We sold near the top, and it was good.
Last Friday, new trends provided compelling reasons to get back in — not least of which was the stock had sold off to below $6.80 a share.
These factors include new OPEC revelations, the uptrend on the WTC chart, and the ongoing foolishness of the 1976 U.S. laws banning exports of oil.
The situation is such that oil produced at a low cost centered close to Asia will be the big winner during the next oil bull market.
As always, as a speculator you find your highest returns from owning companies that find the oil.
I’ve discovered two companies that fit the bill in the next frontier oil market, New Zealand.
But don’t take my word for it. Just follow the money…
The Financial Times recently reported New Zealand is setting off on its biggest exploration year in the nation’s history:
Anadarko Petroleum, the US independent oil company, will drill its first deepwater exploration well off the west coast of New Zealand later this year in what will be a key test of the country’s ambitions to develop its petroleum industry.
OMV, the Austrian company, and AWE, an Australian-based oil and gas group, are also planning exploration wells in what is expected to be New Zealand’s biggest ever drilling season.
The government last month launched its 2013 licensing round, which consists of 189,000 square kilometres of offshore acreage as well as onshore permits in the proven Taranaki basin. Last December, the government awarded 10 new five-year exploration permits, drawing interest from Royal Dutch Shell and Anadarko as well as OMV and Canada-based East West Petroleum.
The way to play the discrepancy between high oil prices and low prices for oil companies is obviously to buy the oil companies and wait for the arbitrage.
But at Crisis and Opportunity, we are looking for the big gains like the 759% returns we got from Petro Matad. We seek to buy the native oil companies before the big guys get there.
There are two native New Zealand oil companies that have been in the field for years, gobbling up all of the prime leases.
When they (or Anadarko, or any of the majors now flooding to the scene) hit the mother lode, these low-priced stocks will surge as the value of their leases goes up 500% to 1,000%.
Lock and load,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
