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All You Need to Know About Oil

Go beyond the oil headlines with TheStreet.com.

By TSC Staff July 21, 2008

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Updated from July 17.

How much do you really know about the latest oil news?

The following are key insights from TheStreet.com.

From Crude Oil Lifted by Tropical Storm Threat:

Content Continues Below

Texas light crude for August delivery added $2.16 to $131.04 a barrel on Jul. 21, and Brent crude was up $2.73 at $132.92 a barrel.

Tropical Storm Dolly, which formed in the Caribbean Sea over the weekend, is beginning to veer into the southern Gulf of Mexico, drawing the attention of energy traders as it does so. According to Edward Meir, energy analyst at MF Global, the storm will likely track the northern Yucatan peninsula without harming the Gulf's energy infrastructure. However, some weather models are showing that the storm could ultimately aim for Texas.

Read the full article.

From Crude Oil Prices Continue to Slide:

Texas light sweet crude for August delivery was recently Jul. 17 midday down $3.85 at $130.75 a barrel, and Brent crude was losing $3.59 at $132.22 a barrel.

Demand deterioration for crude and its derivative products has the energy markets thoroughly spooked. The Energy Information Administration reported on Wednesday that U.S. motor gasoline consumption over the past four weeks was 2.2% lower than the same period last year.

Read the full article. Plus, don't miss these related stories: Crude Oil Pummeled Again (Jul. 16) and Crude Oil Futures Fall Hard (Jul. 15).

Cramer: Oil's Headed to $110 (Video, Jul. 17)

Jim Cramer says consumption is down and natural gas will be the fuel of the future.

Plus, don't miss these oil-focused options strategies on TheStreet.com TV:Oil Selloff Pumps Up Valero (Jul. 15: The sharp drop in oil is boosting shares of Valero (VLO). If this trend continues, options expert Steve Smith says, the best strategy is to buy call options on the refiner.) and Mad About Options: Exxon Out of Gas (Jul. 14: Jud Pyle and Matt Buckley review Jim Cramer's recent short-term bearish comments about Exxon Mobil (XOM) and offers options strategies for traders and investors.)

From Crude Oil Climbs Back Above $140:

The International Energy Agency's monthly report on global oil markets, released to the public early Thursday Jul. 10, upped the agency's forecast for total global oil consumption in 2008 by 1% to 87.7 million barrels.

The IEA is infamously known for making large changes to its energy predictions month-to-month. However, its outlook has remained steady the past several months as signs of demand being destroyed have trickled in from more and more global economies.

Read the full article.

From Pickens: Oil May Fall to $100 in Next 2 Years:

T. Boone Pickens, the legendary wildcatter turned takeover artist who now commands the hedge fund B.P. Capital Partners, said in a Tuesday Jul. 8 television interview that oil prices will likely stay around $150 a barrel for the foreseeable future.

However, Pickens told CNBC that crude could fall back to $100 a barrel in the next two years as consumption patterns adjust to exorbitant prices.

Earlier in the day, Pickens hosted a meeting with reporters in which he introduced his version of a new energy plan aimed at reducing U.S. dependence on foreign oil. The plan proposes that gasoline-powered auto engines be converted to run on natural gas. Additionally, Pickens says the existing power-generation system that currently runs on natural gas and old coal technology should be replaced with a new system powered largely by wind and solar power.

Read the full article.

From Crude Futures Fall as Dollar Strengthens:

Crude futures are heading south again Tuesday Jul. 8 at the New York Mercantile Exchange, pressured by strength in the U.S. dollar and the slight unwinding of tensions between Iran and Israel.

West Texas crude was recently down $3.17 at $138.20 a barrel, and Brent crude was falling $3.02 at $138.85 a barrel.

The dollar made a strong showing against other major world currencies overnight, gaining roughly 1% against the euro and the pound sterling and half a percent against the yen.

Crude prices tend to fall when the value of the U.S. dollar rises, because oil is traded in dollars in international markets.

Read the full article. Plus, don't miss these related stories: Crude Oil Futures Take a Tumble (Jul. 7) and Oil Jumps on Fears Iran Could Be Attacked (Jul. 1).

From Crude Prices Pass $145:

Crude oil futures soared past $145 a barrel for the first time ever Thursday Jul. 3 before a bounce in the U.S. dollar cut into the gains.

Energy futures in the U.S. tend to stay firm ahead of holidays, as traders are usually unwilling to expose themselves for a long weekend to geopolitical strife, infrastructure breakdowns or other threats that can leave oil supplies unbalanced.

Read the full article. Plus, don't miss this related story: Rising Oil, GM Selloff Wallop Stocks (Jul. 2):

From Crude Oil Steady Ahead of Inventory Report:

Crude oil was trading laterally early in Wednesday's Jul. 2 session at the New York Mercantile Exchange, with market participants apparently content on lying low until the Energy Information Administration releases this week's report on petroleum storage levels.

West Texas crude was down a hair at $140.87 a barrel, and Brent crude was adding 14 cents at $140.81.

Read the full article. Plus, don't miss these related stories: Crude Oil Drops After Inventory Report (Jun. 25), Stocks Limp Out of Second Quarter (Jun. 30), Crude Oil Strikes Another Intraday Record (Jun. 30) and Libya, OPEC Remarks Spark Crude Oil Rally (Jun. 26).

China Watch: Breaking Into Oil (Video)

Brittany Umar and Patrick Schultz break down how to play China's emergence into the oil-fields services industry.

To watch the video, click the player below:

From High Crude Oil Prices? It's the Fed, Stupid:

To be sure, geopolitical strains and global supply-and-demand forces are impacting the rising price of crude. But oil is priced in dollars and the dramatic decline in the value of the greenback of late has to be giving upward momentum to crude prices.

By keeping interest rates low, the Fed is raising the supply of dollars and other forms of liquidity in the financial system, thus weakening the value of the U.S. currency. But the lack of scrutiny of the central bank in the current oil debate is curious.

Read the full article. Plus, don't miss Oil's High -- Suck It Up (Jul. 1) on TheStreet.com TV, where RealMoney's Dan Dicker argues that the U.S. government will soon take a disastrous action to remove speculation in the oil markets.From Cramer: Don't Be Fooled by Dollar-Oil Excuses (Video):

Cramer: "Oil has nothing to do with the dollar, other than a miniscule amount of pricing... This thesis has cost you billions... It has made you focus on the dollar as opposed to focusing on supply and demand, it has made you feel that the U.S. is the 'swing vote' in oil - it's clearly not. The swing vote is China."

To watch the video, click the player below:

Plus, don't miss these oil-focused "Wall Street Confidential" videos on TheStreet.com TV: Cramer: Best Time to Buy Oil (Jul. 1), Cramer: Factors Pumping Up Oil Prices (Jun. 30), Cramer: U.S. Oil Inventories Don't Mean a Thing (Jun. 27), Cramer: Calling Out the Oil Lies (Jun. 21), Cramer: No Stopping Oil Prices (Jun. 19), Cramer: If Your Stock Needs Oil, Don't Own It (Jun. 9), Cramer: This Is Not a Recession Led by Oil (May 20), Cramer: Disregard Oil Inventory (May 7), Cramer: What Controls Oil Prices (May 6) and Cramer: Head for the Exit With Exxon (May 1).

For more oil insights from Cramer, read Cramer's 'Mad Money' Recap: Reaping the Benefits of High Oil Prices, as well as his five-part "Mad Money" series on "wildcat" drillers: Cramer's 'Mad Money Recap': How to Beat High Oil Prices, Cramer's 'Mad Money Recap': Putting Housing Ahead of Inflation, Cramer's 'Mad Money' Recap: Peru Play, Cramer's 'Mad Money' Recap: A Home-Grown Natural Gas Play and Cramer's 'Mad Money' Recap: Next Week's Game Plan.

From How to Play $200 Oil:

Anadarko (APC) is especially prepared for the prospect of $200 oil, both on the natural gas side and on the oil side. It has international exposure, but with oil that high, transportation costs will become an issue for the major oil companies. For U.S. domestic usage, the Gulf of Mexico is a strong local source. Anadarko is drilling deep to develop new fields, and it has the best rig inventory lockups in the Gulf. In both the Miocene and Lower Tertiary Prospects, it is planning on drilling an additional 10 to 15 wells for exploration and appraisal. More oil and gas means more profit.

On land, Anadarko has an equally impressive record.

Read the full article. Plus, don't miss these videos on TheStreet.com TV: Cramer: Why I Love Anadarko (May 6) and Cramer Interviews Anadarko Petroleum CEO (Mar. 25).

From Airline Stocks Could Triple If Oil Settles:

Avondale Partners analyst Bob McAdoo, in a report Wednesday Jun. 25, said there was "little chance" airline shares could rise much with crude oil prices fluctuating between $2 and $4 a day.

"Once oil stabilizes, and it becomes clear to the broad group of investors and pundits that the legacy airlines are not all going out of business, we expect a doubling or tripling in airline share prices," he wrote.

Read the full article.

From Oil's Attendant Job Cuts Weigh at American:

As flight attendant No. 17,702 at American Airlines (AMR), Mary McAlee faces the very real possibility that she will be laid off next month August. Because of her position at the bottom of the seniority list, McAlee has a clear view of the harsh realities of higher fuel costs on the airline industry.

To be sure, it is not just airline employees who are hurt by skyrocketing fuel costs. Investors have watched American shares plunge 65% this year. Executives are being forced to shrink the company they helped to build, and passengers must pay more as fares and fees climb.

Read the full article.

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 Fedeases.

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) and Diamond Offshore (DO), 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) 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), 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) 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) 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.

From Hypothetical Oil Bubble Hypothetically Could Burst:

The Barron's author stresses the impossibility of predicting anything with total accuracy (of course this is true, but investors, unlike journalists, must risk such predictions) before returning to the "ifs" and adding the nutty notion that even under ideal circumstances, oil will only fall to $100:

"But it's impossible to know with precision when the bubble will burst. The Saudis could roil the markets with a pronouncement June 22; the dollar could revive or demand could plummet, or all three. And if prices start falling, the downturn could accelerate, sending crude back to $100 -- where it would be cheaper, but still far from cheap."

The article mentions how airlines and retailers might benefit if an oil bubble pops. And it points to oil companies like Devon Energy (DVN), Apache (APA) and XTO Energy (XTO) that can get hit badly, while larger ones like ExxonMobil, Chevron and ConocoPhillips might fare better. Are they saying that if oil plummets, airlines and retailers will do well?!? That's crazy talk!

And the specific breakdown is, again, way too hedged. How small oil companies would get creamed and larger ones fare better I don't know. It seems that if all those "ifs" happen, all the oils will get creamed.

Read the full the article.

Plus, don't miss these oil-focused "Business Press Maven" videos on TheStreet.com TV: They Just Don't Get Oil! (Jul. 7: Marek Fuchs marvels at the obvious error The Wall Street Journal made in predicting $200 oil.), They Just Don't Get Oil! (Jun. 23: Fuchs cleans up Barron's tragic oil spill.), They Just Don't Get Oil! (May 21: Fuchs slaps his knee in laughter at a Business Week headline about oil prices.) and They Just Don't Get Oil! (May 13: Fuchs bemoans the fact that the business media ascribes 1,423 reasons to May 12's blip in oil prices.).

From How Oil and Water Futures Affect Ag Stocks:

There is a clear connection between water, grain, animal protein and oil. Irrigation of farm land is far and away the biggest use of water (at about 70%). Food production is also very energy intensive. Agriculture accounts for a full sixth of U.S. energy consumption.

Between 1945 and 1994, the U.S. crop yield grew three-fold, but the energy input grew four-fold. The trend has reached the point of diminishing returns. Oil itself has become more energy intensive. In the 1940s, it took about one barrel of oil to get 100 barrels. Now that ratio is closer to 1 to 10.

At current production rates and given the current level of technology, some oil producers are projected to run out of oil in the next 10 to 15 years. Many countries are going to face severe water shortages. There are some pundits who suggest that the next wars are more likely to be over water than oil.

Read the full article.

From The Money's in Oil Refineries (Video):

Dan Dicker says regulatory involvement is bringing oil down, but it's still a long-term bull story.

Dicker: "There's clearly going to be -- again -- an enormous desire to have exposure in the oil markets... I have the refiners on my radar now. I mean I've been suffering with them -- they've had a horrible time in terms of margins, based on high crude oil and low prices of relative products to them. However, now that oil has come off a bit, those margins are restoring themselves very, very quickly and Tesoro (TSO) and Valero -- particularly Tesoro has made a tremendous move."

To watch the video, click the player below:

From Forget Fundamentals When It Comes to Oil:

So here, in no particular order, are the arguments and proofs of "speculative oil."

The Growth Factor

First, the growth of commodities as an asset class is unprecedented. We need no litany of numbers to prove this point. We can merely look at the volume numbers being posted by all the major commodity exchanges over the last few years.

In oil, I will draw upon numbers from my previous trading home, the New York Mercantile Exchange. At the end of 2007, Nymex reported average daily volumes of 1.485 contracts per day, an increase of 25% over 2006. So far in 2008, growth has continued at an astronomical pace: January volumes increased 6% over the same period in 2007, February was up 28% and March increased an astounding 62%.

We don't need to be geniuses to recognize where most of this growth is coming from. It's not new commercial interests looking to hedge exposure to the ramping oil markets. Whether from managed futures, algorithmic programs, hedge funds or individual traders who are widening their repertoire from just stocks, it all represents an enormous increase in flow of speculative trade.

Read the full article.

Need Oil Exposure? Don't Know Where to Start?

In "How to Outperform the Market and Manage Risk With ETFs," Scott Rothbort writes that you can use an industry-specific exchange-traded fund (ETF) as a "placeholder" as you do the necessary homework on individual stocks. The U.S. Oil Fund (USO) (USO) and Oil Services HOLDRs (OIH) are two oil-focused ETFs.

To stay up to date on oil, visit the TheStreet.com'sEnergy/Commodities section.