-- Posted Tuesday, 17 July 2012 | | Source: GoldSeek.com
Oil prices have drastically retreated in the last few months to an 8 month low yet gasoline prices are still only down, on average, 40 cents per gallon nationally.
A lot of this is thanks in large part to a secret stimulus from the Saudis to help President Obama, Ben Bernanke and the US consumer. The Saudis accomplished this stimulus by ramping up oil production for a number of powerful reasons that help the US a lot in the short term, but does nothing to solve any long term issues in the oil market or the world financial system.
Lower oil and gasoline prices help increase the odds President Obama wins reelection in November, allows Ben Bernanke to delay more stimulus/QE as long as possible and only do the bare minimum (Operation Twist).
More stimulus/QE would cause commodity prices to rapidly spike and would negate the Saudi’s “secret stimulus,” which gives US consumers lower gasoline prices at the pump.
So why despite the Saudis best efforts have gasoline prices not fallen even further?
Well, the price of producing newer oil production is far more expensive than it was in previous years even 4 or 5 years ago as older, conventional oil fields rapidly deplete at more than a 5% production/flow rate drop off per year and this production is replaced by higher production cost oil.
Inflation has also crept rapidly into the oil value chain as according to a recent Bernstein study a few months ago, private oil companies in the industry have experienced higher input costs (inflation ) of an average of 11% in just the last 12 months.
Our separate research we did for 2+ months before we began writing the Petro Profit Report concluded that the oil industry has had more than 20% inflation, on average, in their input costs since 2009.
There is a lot of marginal, unconventional oil production online now from Canada’s oilsands, deep water offshore oil, Enhanced Oil Recovery (EOR) and Shale Oil production where the all in production costs are at or above $80/barrel for producers.
At below $80/barrel WTI prices, this production is not economic and has to be turned off.
The problem is now that an increasing number of the world’s oil production is now unconventional oil production with much higher production costs.
The days of cheap and easy oil are over. There is still plenty of oil and plenty of oil reserves, but oil can no longer be produced cheaply for $10/barrel like it was in decades past to meet rising global demand for it.
Recently, China has been increasing its purchases of oil like a smart Contrarian value investor in commodities, buying when there is panic on the streets as the Chinese realize that a few years from now, $80/barrel oil may look very cheap if money continues to be printed by central bankers in developed countries at will.
Smart investors who can be patient for 18-24 months should be well rewarded for starting or adding to long oil positions around these price levels as oil prices cannot go much lower, without massive production being turned off in very short order.
Why should Gold and Silver investors who buy precious metal miners care about the price of oil?
They should care and learn to invest and hedge their exposure to precious metal mining shares by adding exposure to oil positions because more than 30% of the total production costs of mining are made up entirely of energy input costs for oil, gasoline and diesel and yet many precious metal miners do not lock in long term supply contracts for cheap energy prices like they should.
So investors need to protect themselves and their precious metal mining stocks in their portfolios since management teams at mining companies will not hedge the potential of higher energy input costs for the investors.
Finding quality oil stocks can be difficult and time consuming, so Jason Burack, Mo Dawoud and John Manfreda from Wall St for Main St decided to put together The Petro Profit Report! The report includes:
- Top 4 reasons why oil and gasoline prices will go higher
- Top 17 oil stocks, which include 4 big cap oil stocks, 5 technology & services oil stocks and 8 cash flow junior oil stocks
- Our opinion on how to allocate your portfolios with these oil stocks
They selected these 17 oil stocks because research indicated that these companies:
- Have limited exposure to U.S. natural gas prices
- Tremendous oil production growth and low input cost
- Solid or improving fundamentals without high amount of debt on their balance sheet
- Great mix of geographically diversified assets in Canada, Asia and Latin America that are more friendly to investment and private property rights
The junior oil stocks are all over the globe and the stocks have growing cash flow with production growth, reserve growth, massive exploration upside and great share structures with the likelihood of minimal shareholder dilution to fund growth.
The authors of the report have a proven track record of picking out quality stocks (see below) in the commodity market and their interviews can be found on Forbes, The Money Show, Financial Sense, The Gold Report, Unconventional Finance, GoldSeek.com and Financial Survivor Network.
