As an ordinary individual investor, the opportunity presented by the continuing expectation of higher crude prices is just what we have been asserting all along. There is a growing worldwide imbalance between energy demand and supply. Crude oil is the low-cost, transportable source of energy, and most of its accessible sources are known or already developed.
For the next few years alternative-energy sources in meaningful size will not be available, and all of the available alternatives are more costly than oil when all true costs are properly accounted. The current ethanol political hornswoggle is a perfect example of refusing to accept this reality, and illustrates the far-reaching worldwide effects of energy access in other areas such as food prices.
Since supply and demand will be brought into balance and supply is already straining at its limits, demand will get curtailed, most likely by rising prices. My last fill-up came in at $4.15 a gallon, and it's not going to stop there.
As a retired competitive bicyclist, I am an enthusiast, so don't get me wrong, but when was the last time you biked to work? Or to the grocery store? Or to Grandma's? Some 99% of the 2.4 billion people in China and India do, and there's eight times as many as here in the U.S.
How are you gonna keep 'em down on the farm after they've seen TV and had even a ride in a motor vehicle, let alone get to drive one? Fat chance, especially if Tata Motors can get them mobility for $2,000 or anything close to it.
So where is demand reduction going to come from? With an average usage per year of 1,375 gallons of crude (or its products) by every one of the 303 million men, women, infants and others in this country, a $5-plus per gallon pump visit is bound to reorient some priorities.
It's already starting to do so, but so far balance is nowhere in sight. This implies that until meaningful alternative-energy sources are available, the pressures on existing sources will get intense.
Since few major oil producers have been able to find sufficient new reserves anywhere in the world to keep up with the growing demand from their customers, they will be forced to do it by acquisition.
The prime energy stock investment candidates continue to be the exploration and production (E&P) companies that find and develop crude oil and natural gas reserves in excess of their present contractual commitments. They are the acquisition targets. Because many of those stocks have had big price run-ups, fewer of them still offer attractive opportunities.
As the volume market makers see it, at present prices the best E&P stocks are Cairn Energy, Assam Company and Selan Oil.
Globally speaking, there are some integrated oils that have sufficient potential to warrant buying, with Norway's StatoilHydro and South Africa's Sasol particularly well priced now. U.S. majors include Occidental Petroleum and Apache.
Well-priced service and transport stocks include GE Shipping, Mercator and SCI.
Alternative fuels provide two buy candidates that meet our minimum investment hurdle rate of a probable net price change of at least +5% in the coming three months. They are Webel Energy XL Telecom and Energy, and a string of private coal producers.
Nothing in this article is, or should be construed as, investment advice.
Rohit
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