| COMMODITIES CORNER |
By Frank Curzio, editor, Small Stock Specialist
"Within 20 years, we will no longer need to import oil from overseas." Last month, I spoke with Dr. Kent Moors on my radio podcast. We talked about an idea I've been following for years. New technologies – like fracking and horizontal drilling – have allowed the U.S. to tap into incredible oil and gas reserves.
My research team and I have gotten a close look at these technologies over the last 12 months in the Permian Basin, Eagle Ford, and the Bakken Shale. This has led to a huge oil boom in America. In 2011, the U.S. was producing 5.5 million barrels of oil per day. Today, it's producing 7.5 million barrels per day. That's a 36% increase in oil production in just two years. And it's the most oil America has produced in 25 years.
Despite this massive boom, the U.S. isn't even close to producing enough oil to meet current demand. But Dr. Moors argues we will be soon. And even if he's half right, a few key players are going to reap enormous rewards.
Americans consume about 18.5 million barrels of oil per day. To reach energy independence, we'd have to increase production by 11 million barrels of oil per day. That's why Dr. Moors' prediction – that in 20 years, the U.S. will no longer need to import oil from overseas – was so shocking.
Dr. Moors is one of the smartest oil analysts in the field. He's a consultant to the world's largest energy companies. And he's basing his call on the latest planning document from the Organization of the Petroleum Exporting Countries (OPEC). OPEC is an oil cartel made up of mostly Middle East countries, and its purpose is to coordinate oil policy. The document projects that not a single member of OPEC will be exporting oil to America a few decades from now.
In other words, the largest oil-producing nations believe America will be energy independent in the not-so-distant future. For the U.S. to become energy independent, it would likely have to open up more shale areas in New York, California, and Florida. It would also have to drill for oil in the Three Forks (under the Bakken shale), the Cline (in the Permian Basin), and the Utica (located under the Marcellus shale). Dr. Moors also suggests that the U.S. will import about 30% of its oil from Canada.
That means the U.S. will need to produce about 13 million barrels of oil per day to meet current demand – 5.5 million barrels more than current production levels. I'm not sure we'll get there in 20 years. But if the U.S. opens up more shale areas and starts importing fewer barrels of oil from overseas, many companies will be huge beneficiaries. I suggest buying some of the largest shale oil producers, like Continental Resources (CLR) and Pioneer Natural Resources (PXD).
These companies drill in the Bakken, Permian Basin, and Eagle Ford – and their oil production numbers are already skyrocketing. Oil-service firms – like Schlumberger (SLB), Baker Hughes (BHI), Weatherford (WFT), and Halliburton (HAL) – will also be winners. These companies sell drilling equipment and services to energy giants like ExxonMobil and Chevron.
My favorite pick is Halliburton – which I believe will be bought by General Electric over the next 12 months. As America pushes to become energy independent, these companies will likely put money in investors' pockets.
Further Reading:
"Within 20 years, we will no longer need to import oil from overseas." Last month, I spoke with Dr. Kent Moors on my radio podcast. We talked about an idea I've been following for years. New technologies – like fracking and horizontal drilling – have allowed the U.S. to tap into incredible oil and gas reserves.
My research team and I have gotten a close look at these technologies over the last 12 months in the Permian Basin, Eagle Ford, and the Bakken Shale. This has led to a huge oil boom in America. In 2011, the U.S. was producing 5.5 million barrels of oil per day. Today, it's producing 7.5 million barrels per day. That's a 36% increase in oil production in just two years. And it's the most oil America has produced in 25 years.
Despite this massive boom, the U.S. isn't even close to producing enough oil to meet current demand. But Dr. Moors argues we will be soon. And even if he's half right, a few key players are going to reap enormous rewards.
Americans consume about 18.5 million barrels of oil per day. To reach energy independence, we'd have to increase production by 11 million barrels of oil per day. That's why Dr. Moors' prediction – that in 20 years, the U.S. will no longer need to import oil from overseas – was so shocking.
Dr. Moors is one of the smartest oil analysts in the field. He's a consultant to the world's largest energy companies. And he's basing his call on the latest planning document from the Organization of the Petroleum Exporting Countries (OPEC). OPEC is an oil cartel made up of mostly Middle East countries, and its purpose is to coordinate oil policy. The document projects that not a single member of OPEC will be exporting oil to America a few decades from now.
In other words, the largest oil-producing nations believe America will be energy independent in the not-so-distant future. For the U.S. to become energy independent, it would likely have to open up more shale areas in New York, California, and Florida. It would also have to drill for oil in the Three Forks (under the Bakken shale), the Cline (in the Permian Basin), and the Utica (located under the Marcellus shale). Dr. Moors also suggests that the U.S. will import about 30% of its oil from Canada.
That means the U.S. will need to produce about 13 million barrels of oil per day to meet current demand – 5.5 million barrels more than current production levels. I'm not sure we'll get there in 20 years. But if the U.S. opens up more shale areas and starts importing fewer barrels of oil from overseas, many companies will be huge beneficiaries. I suggest buying some of the largest shale oil producers, like Continental Resources (CLR) and Pioneer Natural Resources (PXD).
These companies drill in the Bakken, Permian Basin, and Eagle Ford – and their oil production numbers are already skyrocketing. Oil-service firms – like Schlumberger (SLB), Baker Hughes (BHI), Weatherford (WFT), and Halliburton (HAL) – will also be winners. These companies sell drilling equipment and services to energy giants like ExxonMobil and Chevron.
My favorite pick is Halliburton – which I believe will be bought by General Electric over the next 12 months. As America pushes to become energy independent, these companies will likely put money in investors' pockets.
Further Reading:
The Most Important Chart for Oil Investors to See
By Matt Badiali, editor, S&A Junior Resource Trader
Each new number out of the oil sector is bigger than the last. As longtime readers know, we're in the middle of an energy revolution. The technology is advancing so quickly, it's like moving from the Model T to the Ferrari in just a few years... and it's helping the U.S. tap incredible reserves of oil and natural gas.
The latest forecasts are out and they're shocking. If you own energy stocks, you have to see this chart. According to the U.S. Energy Information Administration (EIA), domestic crude oil production will hit 7.8 million barrels per day by 2014. That's the highest production since 1988. It represents an astonishing 56% increase from the recent low of 5 million barrels per day in 2008. This chart below shows exactly what I'm talking about.
By Matt Badiali, editor, S&A Junior Resource Trader
Each new number out of the oil sector is bigger than the last. As longtime readers know, we're in the middle of an energy revolution. The technology is advancing so quickly, it's like moving from the Model T to the Ferrari in just a few years... and it's helping the U.S. tap incredible reserves of oil and natural gas.
The latest forecasts are out and they're shocking. If you own energy stocks, you have to see this chart. According to the U.S. Energy Information Administration (EIA), domestic crude oil production will hit 7.8 million barrels per day by 2014. That's the highest production since 1988. It represents an astonishing 56% increase from the recent low of 5 million barrels per day in 2008. This chart below shows exactly what I'm talking about.
To put that in perspective, the increase alone will be enough to supply all of Russia's oil demand. It's nearly enough oil to supply the entire continent of Africa. In fact, it's more than enough oil to supply any country in the world except the U.S., China, India, and Japan.
What does this mean for investors? Get cautious. As domestic production increases, the U.S. requires fewer imports. (Oil imports are already at their lowest point since 1998 and falling.) That removes a huge chunk of demand from the global market. Prices will drop dramatically. The EIA is forecasting an 8% decline in the global oil price and a 15% decline in 2014.
If you own high-cost producers – companies that have to spend a lot of money to pump a barrel of oil – you should cut them loose. Take Suncor (NYSE: SU), for example. Suncor is the "poster child" of Canada's oil sands. These energy deposits are tough to mine.
According to Bloomberg, it cost Suncor $139.94 to produce one barrel of oil in 2011 (the most recent data available). Compare that to ExxonMobil (NYSE: XOM) – the world's best oil company – which spent just $9.44 a barrel on average. When you have to spend a lot of money to produce oil, you make a lot less selling it. Suncor's profit margin was just 7.3% in 2012, even with high domestic oil prices.
This company could begin to lose money if oil prices fall even slightly. Many other oil producers are in the same situation. If you own any high-cost producers, take some money off the table and protect yourself. The oil production numbers we're seeing today are extraordinary... and they're just going to get bigger.
What does this mean for investors? Get cautious. As domestic production increases, the U.S. requires fewer imports. (Oil imports are already at their lowest point since 1998 and falling.) That removes a huge chunk of demand from the global market. Prices will drop dramatically. The EIA is forecasting an 8% decline in the global oil price and a 15% decline in 2014.
If you own high-cost producers – companies that have to spend a lot of money to pump a barrel of oil – you should cut them loose. Take Suncor (NYSE: SU), for example. Suncor is the "poster child" of Canada's oil sands. These energy deposits are tough to mine.
According to Bloomberg, it cost Suncor $139.94 to produce one barrel of oil in 2011 (the most recent data available). Compare that to ExxonMobil (NYSE: XOM) – the world's best oil company – which spent just $9.44 a barrel on average. When you have to spend a lot of money to produce oil, you make a lot less selling it. Suncor's profit margin was just 7.3% in 2012, even with high domestic oil prices.
This company could begin to lose money if oil prices fall even slightly. Many other oil producers are in the same situation. If you own any high-cost producers, take some money off the table and protect yourself. The oil production numbers we're seeing today are extraordinary... and they're just going to get bigger.
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