What NBC Business reported last week:
“a government report said U.S. crude oil inventories grew to their highest level since 1990. The U.S. Energy Information Administration reported crude stocks rose 2.71 million barrels last week. The rise was slightly more than the build of 2.2 million barrels expected in a Reuters survey of analysts and put U.S. commercial inventories at 388.62 million barrels, the most since 1990 and close to the record 391.9 million barrels reached in 1982, the year the EIA started tracking inventories. “
In addition, Financial Time’s Nick Butler, after reviewing Exxon’s energy outlook, saw the lack of specifics to mean the company is expecting dropping prices and plentiful supply in the near future.
2) Hydraulic Fracking and Competition
Thanks to the discovery of “fracking,” by frustrated geologist Bill Zagorski nearly a decade ago, natural gas is easier to get to. This combination of horizontal drilling and hydraulic fracturing has given an edge to companies mainly dealing in this natural energy source.
In a recent report, The National Intelligence Council called fracking a “technological revolution,” but more importantly shared that…
“A dramatic expansion of US production could also push global spare capacity to exceed 8 million barrels per day, at which point OPEC could lose price control and crude oil prices would drop, possibly sharply. Such a drop would take a heavy toll on many energy producers who are increasingly dependent on relatively high energy prices to balance their budgets.”
Energy hawkers can also expect ethanol to provide more competition for standard oil producers soon. According to Bloomberg New Energy Finance, cellulosic ethanol is on track to be cost competitive with corn ethanol in the next three years.
A final word
Though companies like Shell continue yearly under- performance alongside the Big Boys of Oil, analysts still remain somewhat squeamish about calling it a “no buy” due to its size and therefore ability to cushion its falls, though research suggests that purchasing into the firm will not do the investor any favors.
To create further ambivalence in the market, Exxon Mobil Corporation (NYSE:XOM) was recently downgraded to “Perform” from “Outperform” by Oppenheimer, with the rationale that it finds itself “challenged to maintain” its production and that “meaningful cost savings are unlikely.”
If there was a winner to be had here, it’d be Chevron Corporation (NYSE:CVX), but in the light of Big Oil’s future (and the fact that Chevron just cut CEO and executive compensation due to a long string of accidents), its like Paul Begala once wrote about a political winner in a weak field: “that’s a dubious honor,” he began, “kind of like being voted the sexiest member of the Supreme Court.”
Jean-Marc Saint Laurent has no position in any stocks mentioned. The Motley Fool recommends Chevron.
