Last blog talked about the speed of change in today’s world, and being aware of theories that no longer apply. As an example, the Peak Oil Theory was discussed from a different vantage point.
The US reliance on oil imports may be about to change, and about to change quite dramatically. Oil imports in the latest fiscal year were significantly LOWER than the previous year. If you are betting on the price of oil, use caution.
The Effects of this changing Reality
Coal – and Environmentalists
Environmentalists and Greens the world over are on a campaign against mining and burning coal as a fuel or energy. Guess what? Shale Gas is far cheaper and far cleaner than coal.
In the latest fiscal year, coal power plants were being built around the world, and especially in China. New inventions to clean the burning of coal were in high demand and were market darlings.
The new reality is that because shale gas is so much cleaner, so much easier to obtain, and so plentiful, that the market will reduce dramatically the use of coal in favor of natural gas. Environmentalists need fear not. The Market will succeed faster and more efficiently that they can.
Currently, some gas fields and wells have to been capped because the natural gas cannot be sold at a price high enough to repay the expense of extracting it. This is just too much of the stuff.
The Price of Oil and and the Price of Gas
Remember when oil was priced at $8/and $10 a barrel, and no-one cared. Why should anyone care? There was so much oil under the sand in Saudi Arabia that mankind would never use it up.
Oil companies traded at low multiples of earnings, Detroit built gas-guzzlers, and energy was plentiful.
What do you think will happen to the price of oil when the world realizes that there is more gas being produced than we could possibly use? Estimates say that there is least an 800 year supply of shale gas available in North America – 800 YEARS!
What do you think will happen to the price of natural gas?
Large Equipment Manufacturers – Another Example
It is the season for companies to report earnings. Earnings of stocks such as Caterpillar and Finning are stellar. Dividends are being maintained or increased.
Analysts are falling all over each other to recommend the purchase of these types of stocks, and now that the world is stabilizing economically, they feel that demand will increase for this type of equipment.
Maybe. Or maybe not.
When the world fell apart, governments rushed to inject money into the system. They did so by bailing out the banks (an unconscionable act of stupidity, that bankers used to bonus themselves enormous amounts of money) and secondly, governments poured money into capital projects – roads, bridges and so on. That is infrastructure.
Infrastructure construction requires heavy equipment, so heavy equipment manufacturers did well – last year. Not next year – last year.
Remember that piece of boilerplate cautionary statements set on every piece of paper that you receive from your broker? – “Past results are not an indication of future results.” The point is, that this statement is absolutely true.
Next blog – What will happen to the dynamics of oil money flowing to the Arab Gulf? Or of oil money funding both the large energy companies and the Islamist terrorists?
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