It’s the oil stupid!
When it comes to the stock market these days, the price of oil plays a big part on where the market goes. While oil has been on the decline as of late, don’t be fool. The good old days of $30, $40 or even $50/barrel will never return. According to recent AP report, the world produces about 85 million barrels per day and we consume all of it. The world can’t get enough of it. Moreover, if the price of oil falls too quickly, all that the oil czar has to do is cut production to keep prices high. The oil market is the most manipulated of any commodity. The dream of “untapped reserves” and “alternative energy” is misleading and far from reality.
What untapped reserves and what alternative energy? We hear there’s a lot of oil in Alaska, but don’t expect any drilling there anytime soon. The subject is too political. We also hear about using corn and wheat to produce ethanol to run our cars, but the reality is we are far from becoming an ethanol nation. Replacing gasoline with ethanol is certainly possible, but will take coordinate efforts, which won’t happen in the foreseeable future. Again, the issue is political. The oil companies have too much clout to let this happen.
The reality is there is not much oil left in the world and prices can only go higher. As we have seen time and time again, it doesn’t take much for oil to go up, any negative tone from Iran, Saudi Arabia or Nigeria can cause oil prices to skyrocket. We’ll likely see $100/barrel then not. If so, this would translate into about $4.50/gallon when we fill up.
The point we’re trying to get across is oil is not going down. We might see temporary drop here and there, but don’t expect to see $1.50/gallon gas ever again. Therefore, as an investor, we should capitalize on any opportunity to buy energy stocks. Despite the sickening profit these oil companies post quarterly, companies such as ExxonMobil (XOM), ConoccoPhillips (COP) and Chevron (CVX) are all great companies we should have in our portfolio. We suggest keeping an eye out for these three stocks and buying them whenever there’s weakness.
