It’s been painful out here in California lately with these very high gas prices.
While it seemed a ‘perfect storm’ that put us in this situation with refinery shortages, power outages and fires, it still doesn’t make it better when gas prices are near $5 a gallon. That’ll eventually be corrected, but we continue to live in a world of high oil prices.
HISTORICALLY HIGH LEVELS
West Texas (WTI) crude is currently at $92 a barrel, North Brent (England) is roughly $110. The year has seen highs in WTI over 110 and lows near 75. In a world that seems awash in oil (that is certainly what we hear from the major oil producers) it seems odd oil prices remain elevated.
TERROR PREMIUM
I understand there is a terror premium on crude, and even a premium due to the constant threats from Iran and others in the Middle East region. However, demand and supply always make the equilibrium price and at some point economics 101 will be the rule not the exception. The US has discovered massive oil and shale reserves, so much that it could lead to energy independence within ten years. Our continued use is foreign oil is crippling to our trade deficit and a reminder of our need to find alternative sources of energy.
TREND REMAINS BULLISH
The trend in oil is clearly up even with the fundamentals probably showing prices should be falling. The technical picture is bullish and continues to portray higher prices on the horizon.
TOP PICK PLAYS
There are several groups that benefit from the rise in crude but none better than the services sector. The best names in this group include Schlumberger (SLB), National Oilwell Varco (NOV), Halliburton (HAL) and Ensco (ESV).
All of these names are near yearly highs, and if crude rises look for these stealth names to run higher as well.
Disclosure – long SLB and NOV calls and spreads
