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What Do Japan, Energy and Dividends Have in Common?

Crude Debate

Howdy Steve,

I've enjoyed your recent columns on energy in 2004 . However, I've also noticed less sanguine energy outlooks, in articles like the one entitled "Oil Stocks Look Like a Dry Hole" (Business Week Online, Jan 16.). What is the author of that article missing -- that average oil prices may stick around $30 a barrel in 2004?

Also, don't most of the major integrated oil producers throw off good dividends, which are then passed along to shareholders in the fund? Thanks again for your thoughts.


Steve Aldrich


Hi Steve,

Many thanks for reading and responding with the kind words. Two points worth mentioning about the worthy Business Week Online article. First, it's true that the Shell news about overstating its reserves, which came on Jan. 9, will weigh on the sector a bit. Some of the majors may be forced to standardize their reporting of reserves, which may mean these companies lower their estimates of proven reserves.

While it may put some pressure on the big companies to see their proven reserves shrink a little bit, reserve reporting has always been something of a shell game -- to steal a pun from The Economist. The lowered reserves drive home the second point -- supplies remain tight and dwindling in the oil and natural gas market. The article notes that production is increasing in Nigeria, the former Soviet Union and elsewhere, which is true. But the key is supply growth, which is really slowing down.

Non-OPEC supply growth is vital to keeping costs lower and loosening OPEC's firm grip on prices. Roughly 80% of non-OPEC oil supply growth has come from the former Soviet Union -- and that growth is slowing considerably, according to Jennison Natural Resources fund co-manager Leigh Goehring. The diminished threat of non-OPEC supply enables OPEC to keep prices high -- OPEC claims comfort with the $28 to $30 a barrel range, and they don't seem to mind it staying above $30, either.

I'm not an expert on energy by any means, so take my musings with a hefty dose of salt. And Business Week may be spot on about service-sector companies being the better investment -- Smith International (SII) and so on. Meanwhile, you are right about the dividend.

I should add that the Business Week article didn't "miss" anything -- it was a sound piece on how the Shell news, which arose after I penned my energy column, may drag on the sector. I'm sticking to my guns that the energy sector still looks poised to outperform in 2004. To borrow from and slightly amend Mark Twain: It were not best that we should all think alike; it is difference of opinion that makes horse races -- and the stock market.

As originally published, this story contained an error. Please see Corrections and Clarifications. has a revenue-sharing relationship with under which it receives a portion of the revenue from Amazon purchases by customers directed there from

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