Oil For The Fire

One of the largest factors affecting economic models everywhere has been the volatility of oil prices - just this week, the US Bureau of Labor and Statistics published the monthly inflation number and it wasn’t pretty... The CPI was up 1% in May!

Consumer Price Index - 12 month percentage change

The culprit? A 49% increase in fuel prices; economists were shocked as regular gasoline or airfare costs skyrocketed quicker then they ever have with this being the driving factor.

However, it is in these unaccounted for swings where an investor can truly profit and in analyzing the underlying moves in this economic driver we can see that oil is in one of it’s strongest uptrends of this decade.

Crude Oil Chart

Taking a closer look at oil’s technicals, it is evident that crude’s rally has high volume to support continued buying at higher and higher levels through this decade-leading uptrend.

In fact, the MarketClub tools are still showing a clear buying opportunity on both the weekly and monthly charts even as the commodity trades far above its moving averages.

Only recently have energy prices been caught up in the broader risk-off sentiment of the market this week, creating what I think will be an isolated buying opportunity as RSI on the day chart is clocking in at 50, a level unseen since the beginning of this most recent uptrend just over a month ago.

What’s Catalyzing Higher Prices?

Given the above technicals positioning the commodity-correlated energy sector for an entrance opportunity, diving deeper into the market’s catalysts substantiate that further given a couple of key factors:

The rise of resource nationalism has only become more and more prevalent since the onset of the Ukraine-Russia conflict.

An increasing amount of countries have become more cognizant of the need to protect their natural resources and put themselves first by choking the international market of their supplies... this has created a supply-push inflationary environment that shows no signs of stopping as Libya became the most recent country to stop exporting oil just this week!

Crude Oil Chart

Everyone’s favorite cartel won’t be able to make up for this shortage.

At OPEC's last ministerial meeting just over a week ago, the group decided to increase oil output by an extra 648,000 b/d over both July and August...

This only makes up for half of what the market has lost from Russia alone and the problems with OPEC’s production don’t end there; in fact, it’s around this time of the year that many member countries service their production facilities, putting even more of a strain on output (stay on top of OPEC news and read their meeting notes here)

Investing In This Arena – BP & USOI

Starting with one of the world’s 7 ‘supermajor’ oil producers, British Petroleum Plc (NYSE:BP) is a solid foundational energy pick for your portfolio that stands out from the rest - it hasn't rallied to the degree of its peers and is still discounted by the market! That is despite BP’s promising growth catalysts and its 10 quarter run of positive earnings surprises.

BP has only been sold cheaply as a result of the high CAPEX on their ESG/green initiatives (more than any other firm in the space), this will pay multiples in the future so why not get paid a stunning 3.93% dividend yield to wait for them to become the industry leader of the energy sector’s future?

BP Chart

Alternatively, if you want a less systematically risky pick and you’re more of a sector investor, I believe USOI is the holding for you. This product by Credit Suisse is a unique oil fund in the sense that it is a covered call exchange traded note (ETN) that tracks and provides returns based on the performance of the price return version of the Credit Suisse Nasdaq WTI Crude Oil FLOWS™ 106 Index (QUSOI).

The best part of this ETN is its otherworldly monthly coupon yield - the yield currently sits at 21.27% on an annualized basis and the fund has already paid 86 cents-per-share to the investor YTD.

Don’t sleep on either of these picks as the energy sector has dethroned tech as Wall Street’s favorite in this new economic shift!

Visit back to read my next article!

Peter Tsimicalis
INO.com Contributor

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Retail Fuel Prices Skyrocket

“The following is an excerpt from Tim Snyder’s “Weekly Quick Facts” newsletter. Tim is an accomplished economist with a deep understanding of applied economics in energy. We encourage you to visit Matador Economics and learn more about Tim. While there, you can sign up for his completely free Daily Energy Briefs and Weekly Quick Facts newsletters.”

Today’s fuel prices are showing us that with increasing demand, the price for refined products will continue to rise, even with a somewhat stalling crude oil price. Today’s EIA posting for On-Highway Retail Gasoline price was $4.107 per gallon. Remember, in 18 states, beginning this Saturday; the US EPA has mandated the more expensive “Summer Blend” of gasoline. This gasoline blend will stay in place until Mid-September, as demand remains strong and the temperatures are warmer this time of year.

Diesel prices look to be outpacing gasoline and the changes in crude oil prices as well. Monday’s EIA posting for On-Highway Retail Diesel price was $5.16 per gallon. These prices will soon eclipse the records we saw in March of this year. We were trading at $5.25 per gallon on March 14, 2022, and with diesel fuels' current supply issues, we will top this by Mid-May. This will push food prices higher and make planting time in the Agriculture space as expensive as it ever has been!

We’re still on an upward track on fuel prices! Continue reading "Retail Fuel Prices Skyrocket"

Truth: The New Frontier In Energy

“The following is an excerpt from Tim Snyder’s “Weekly Quick Facts” newsletter. Tim is an accomplished economist with a deep understanding of applied economics in energy. We encourage you to visit Matador Economics and learn more about Tim. While there, you can sign up for his completely free Daily Energy Briefs and Weekly Quick Facts newsletters.”

What is it about the truth that scares people?

I remember a time when finding the truth from a political party or the press was essential to the bond that both would build with their constituents. I know that sounds pretty naïve, and there has been politically leaning news media since way before I was born, but the truth is, we all used to read the newspaper for the facts, and if they got the facts wrong, they would print a retraction and fix the mistake. Sadly though, those days are long gone.

Today, however, the truth is more like the seasoning you put on your pasta primavera. It accentuates what it needs to but never overpowers the narrative. Unfortunately, that’s what is happening in the battle between fossil fuels and renewable energy today. The facts are sprinkled about to not offend the narrative that the economy desperately needs fossil fuels, and renewables are nowhere near ready for “center stage”.

Let’s have a little truth for a change! Continue reading "Truth: The New Frontier In Energy"

U.S. Crude Oil Production Leveling In June 2021

The Energy Information Administration reported that June crude oil production dipped by 5,000 barrels per day, averaging 11.307 mmbd. This follows a modest decline in April. In addition, the June 914 figure compares to the EIA’s weekly estimates (interpolated) of 11.141 mmbd, a figure that was 164,000 lower than the actual 914 monthly estimate.

Monthly US Crude Oil Production

A largest gain was in New Mexico (43,000 b/d), followed by The Gulf of Mexico (18,000 b/d). On the other hand, production in Texas actually decline by 22,000 b/d.

Given the huge reduction in May 2020, production recovered by 865,000 b/d over the past 12 months. This number only includes crude oil. Continue reading "U.S. Crude Oil Production Leveling In June 2021"

World Oil Supply And Price Outlook, August 2021

The Energy Information Administration released its Short-Term Energy Outlook for August, and it shows that OECD oil inventories likely peaked at 3.207 billion in July 2020. In July 2021, it estimated stocks fell by 13 million barrels to end at 2.860 billion, 348 million barrels lower than a year ago.

The EIA estimated global oil production at 97.42 million barrels per day (mmbd) for July, compared to global oil consumption of 98.78 mmbd. That implies an undersupply of 1.15 mmb/d, or 42 million barrels for the month. Given the decrease in OECD stocks, non-OECD stocks are implied to have increased by 29 million barrels.

For 2021, OECD inventories are now projected to draw by net 208 million barrels to 2.819 billion. For 2022 it forecasts that stocks will build by 90 million barrels to end the year at 2.908 billion.

Crude Oil

On July 18th, OPEC agreed to:

“Adjust upward their overall production by 0.4 mb/d on a monthly basis starting August 2021 until phasing out the 5.8 mb/d production adjustment, and in December 2021 assess market developments and Participating Countries’ performance.”

The current “reference production” and adjustments levels are detailed in the table below. Continue reading "World Oil Supply And Price Outlook, August 2021"