Oil: What You Need to Know

From Kass: Oil at a Tipping Point?:

The importance of the future price of energy products was underscored yesterday [Jun. 24] in lynx-eyed economist Ed Hyman's summary on the U.S. economy and in his attendant strategy. In that assessment, the price of oil weighed heavily on both calls.

Hyman says that we are not yet in a recession but he sees actual growth in the economy as increasing by only about a 1% over the next year. Hyman sees oil at a tipping point as the rate of decline in worldwide economic growth decelerates. (European growth will slow demonstrably.) Accordingly, he expects oil to drop to $100 per barrel, and if it stays there, the domestic economy can avoid a recession as headline inflation declines (coincident with the price of energy products) and the Fed eases.

If Hyman is correct on the price of crude oil -- and my guess is that he may be -- there will be a change in leadership and profound implications for sector investing in the second half of 2008.

Read the full article.

From Bolling: How to Solve the Oil Crisis:

After several conversations with officials from major drillers like Transocean (RIG Quote) and Diamond Offshore (DO Quote), I am even more convinced that we need to start the long process of exploration and producing oil from all available sources, especially the OCS.

After many discussions with these drillers, I am convinced that there is great reason to believe that Cuba has not only discussed the possibility of allowing China and Venezuela to drill on her sovereign leases, but has already begun seismic studies. This may seem innocuous, but it is not. You may say, "so what ... let Cuba ruin its coastline ... we are going to protect ours." There is a very important fact that no one has addressed. They all agree that these oil finds are immense. The scary scenario plays out like this:

Cuba, China and Venezuela develop some of these oil fields. They sit on Cuban land, which is adjacent to U.S land. The majority of the oil may actually sit underneath our land. If they get a jump on us and develop those fields, they may be pulling oil right out from under our feet.

If you want a real reason to lift the moratorium on our offshore oil leases, look no further.

Read the full article.

From Bolling: Profit on Offshore Drillers

While I like all the drillers on shore or off, I think the opportunity lies with the offshore specialists for now. I think the OCS is the most likely to receive the green light to drill. The threat of losing the oil to adjacent countries like Cuba and Venezuela may inspire some in Congress to move faster there.

Transocean, Diamond Offshore and Noble (NE Quote) are the biggest offshore oil platform drilling service providers. They aren't overly expensive either with price-to-earnings ratios of 10, 20, and 13, respectively. And with the prospect of future rigs becoming available, any money they spend in purchasing these rigs will be money well spent (pardon that one).

After all, it is possible that China, through China National Offshore Oil (CEO Quote), is already either in production or through the lengthy process of accumulating data prior to dropping a drill into the ocean floor. If that is so -- which I wholeheartedly believe -- then we may choose to first lift the moratoria on OCS.

Read the full article. Plus, don't miss Bolling: Emerging Solutions for the Oil Crisis.

From Bolling: Brazil Knows Oil:

Speculators are a funny group. They change their minds fast, and when a big one switches, the masses follow. If Boone Pickens or some of the other well-followed oil longs bail, watch how fast the pump price reads $2.50 or $2.75 per gallon.

In the meantime, if Petrobras (PBR Quote) has anywhere near the oil and gas it thinks it has from that recent oil find (Tupi Field), it will become a world leader in oil and gas production.

The company believes that there may be up to 8 billion barrels of oil equivalents there. It already has 11 billion of proven reserves and may also have massive finds in its Carioca and Guara fields.

Read the full article.

From Petrobras and Vale: The Keys to Brazil's Growth:

As for the energy sector, if you want to get me excited, just say the word "Petrobras," sing the words "Tupi oil field," and I will be in investor heaven. But please forget about Chevron (CVX Quote) don't bore me with ExxonMobil. These corporate sloths don't deserve the light of day until they can actually grow their reserves and production.

To me, Petrobras is now the global energy leader and "energy market tell." Is it just me, or does it seem like Petrobras announces a new energy discovery every couple of weeks? On the other hand, while companies like ExxonMobil have been recording record profits, I don't believe they're as well positioned for the future as is Petrobras. As an example, XOM [ExxonMobil] has spent more money in the past year on buying back stock than prospecting for more oil (as defined by capital expenditures).

Read the full article.