Last year, OPEC drew a line in the sand.
The organization was determined to stabilize oil prices. As you know, that line turned out to be a 2.2 million b/d cut in production. That’s over four million barrels per day in production cuts since September, 2008.
OPEC’s decision had no effect on prices. Things got worse, too. Two days after the announcement, oil prices dropped as low as $32.40 per barrel. For those of you keeping track, that’s a 78% decline since peaking at $147 per barrel in July, 2008. I guess the production cut wasn’t as surprising as OPEC thought.
Then again, we’re also assuming that OPEC members are able to even stick to their quotas. Of course, that idea may just be wishful thinking.
Because the production cuts was so had no effect on plunging oil prices, OPEC was forced to react. The next month, the oil cartel promised to continue cutting production until prices move higher. Oil prices stayed around $40 per barrel until the second quarter of 2009.
Since July, 2008, OPEC imports to the U.S. have dropped over a million barrels per day. U.S. imports overall have declined by almost twice that amount, down to approximately 11.5 million barrels per day two months later.
Domestic Crude Production
Let me ask you, "When was the last time U.S. production actually increased?"
According to the EIA, it has been 17 years since crude production rose. In fact, we’re only producing about as much as we did in 1947!
Shouldn’t come as a surprise to my readers – Peak Oil in the U.S. is nothing new to you. Our production peaked more than thirty years ago.
Despite this downward spiral in production, the EIA has high hopes for 2009. Looking at their Short-Term Energy Outlook, U.S. crude oil production is projected to increase to 5.22 million barrels per day in 2009 and 5.25 million barrels per day next year.. In their latest petroleum report, the EIA attributed much of that increase to four prospects: The Thunder Horse, Tahiti, Shenzi and Atlantis Federal offshore fields. According to the EIA, production from these fields is expected to account for approximately 14% of lower-48 crude oil production by the end of 2010.
Whether or not the U.S. is able to achieve this production growth is another question altogether. However, investors don’t just have to look to just three offshore platforms when investing in U.S. oil production.
Crude Oil Stocks
Since sharing some of today’s top natural gas stocks, I’ve been repeatedly asked how I felt about crude oil stocks. And while oil prices may not pick up until we’re well into 2009, there are simply too many undervalued companies to ignore.
Personally, I tend to stick with the areas inside the U.S. where production will actually increase. Whenever I think of that question, the first place that comes to mind is North Dakota.
Five years ago, North Dakota pumped approximately 81,000 barrels per day. Thanks to the latest boom from the Bakken formation, that number has grown to over 200,000 barrels per day.
At one point, there were as many as 95 drilling rigs active. Since then, the number of active rigs has fallen about 12% to 82 rigs. Like everywhere else, record-low oil prices are forcing companies to slash drilling programs.
Personally, I see this as an opportunity to pick up some of those drillers at a major discount. When oil prices rebound back over $50 per barrel, you’ll see a lot more money being pumped into the area once again. Here are three of the Bakken players—some of the leading crude oil & gas stocks on my radar:
Marathon Oil (NYSE: MRO): Marathon currently has seven rigs running in the Bakken, with plans to remain in the area despite falling oil prices.
Whiting Petroleum (NYSE: WLL): According to Whiting, they completed 12 new oil and gas producers in the Sanish Field during the third quarter of 2008, which helped boost production.
EOG Resources (NYSE: EOG): EOG makes my list due to the fact they are one of the most active drillers in the Bakken, operating several wells in the Bakken.
Bottoming Oil Prices
So did oil prices bottom at $30 per barrel last year?
After rising nearly reaching $75 per barrel recently, I believe we’re finally seeing oil establish a new bottom around $60 per barrel. However, until we see demand (on a global scale) pick back up, oil prices will continue to fluctuate. Even though thought of oil under $30 per barrel isn’t too far-fetched in today’s market, especially after watching prices crash in the latter half of 2008.
Over the next few weeks, we’re going to explore several other ways investors can take advantage of lower oil prices.
Have a safe and profitable holiday,
Keith Kohl
P.S. When this article was written last year, we mentioned the EIA’s hopes for an increase in domestic oil production in 2009. Just last month, this projection became a reality. . . This new report we’ve prepared gives you the latest news on the second Bakken rush, as well as a few Three Forks-Sanish plays that I believe will double alongside higher oil prices. Click here to read about the biggest U.S. oil rush in fifty years. . .
