Although crude could still retest its July lows, economic stabilization in the US combined with resurgent growth in emerging markets is bullish for energy commodities and related stocks through year-end. In the near term, the stock market will be focused on second-quarter earnings. In today’s issue I take a detailed look at earnings releases from three companies that have broader implications for energy-related investments.
I reiterate my outlook for crude oil prices, in addition to analyzing Iraq’s failed auction of oilfield production contracts and the real prospects for alternative energy in the US.
A report by the US Geological Survey (USGS) found that 25 areas inside the Arctic Circle contain about a fifth of the world’s undiscovered but recoverable oil and natural gas reserves.
Most in the media hailed the House of Representative’s passage of climate change legislation as a major victory for President Barack Obama. Clearly, the president lobbied hard for bill to clear the House before the July 4 holiday; the president is trying to push both health care and climate change legislation through Congress this year. In this issue, we’ll take a look at how carbon legislation is likely to affect your energy investments and look at a handful of companies that may actually benefit from carbon cap-and-trade.
Look for buying opportunities as the markets stutter, and don’t sweat the spate of capital raises among master limited partnerships.
As commodity markets stabilize, the groups most leverage to this recovery tend to be services and contract drillers. I’ve written extensively about services companies in the past few issues of The Energy Strategist. In this issue, we’ll take a closer look at one of the most widely watched–and poorly understood–sectors of all, the contract drillers.
Oil’s rally was a major topic in the financial media on Tuesday and Wednesday, and a long list of pundits have attempted to explain the recent rally in crude prices. Many analysts asserted that oil’s run-up has little to do with fundamentals of supply and demand, citing murky arguments related to the weaker US dollar and speculative fervor. But fundamementals are still at the heart of oil’s recent move.
SAGD involves the drilling of two horizontal wells, one at the bottom of the formation and another about five meters above it. The upper well injects steam into the reservoir. The resulting heat melts the bitumen, which allows gravity to assist it to flow to the lower well, and the bitumen is pumped to the surface.
Because of constrained supply and reviving demand, the energy patch looks to be in the early stages of a major advance. Gains to date have been impressive, and I’m wary of the potential for a 5 to 10 percent correction at some point before fall. But such a pullback would be a buying opportunity. Valuations remain under control and, if history is any guide, there’s a lot more upside to come.
The 170 billion barrels of recoverable reserves can help mitigate North American concerns about global security without causing extreme planetary degradation. The key is for US and Canadian policymakers to coordinate climate policy, combining efforts to regulate greenhouse gas emissions, for example, by at least linking their respective cap-and-trade proposals that are almost sure to be enacted within the next 12 months.
