Thursday, June 19, 2008

obert Marcin
The Reason for $130 Oil
6/19/2008 1:53 PM EDT
This chart clearly reveals some form of plateau oil production. A few years ago, no one but the peak-oil theorists would have predicted this. It explains much, but not all, of the current price of oil in my opinion. If non-OPEC supply cannot grow due to accelerating depletion rates offsetting new production, oil must rise enough to stop demand growth in its tracks.

We don't yet know if that price is $100, $125, $150 or higher. We do know its not $60 or $80 because we have already been there without real demand reduction.

I still like the major oil companies because they are unloved, underowned, and undervalued. I do not like the mid teen p/e ratio E&P or oil service companies as they are too expensive for me. Oil is probably due for a correction in here. But I expect to use any real dip in the cheap stocks to increase exposure. I do think one can hedge with the commodity or expensive energy stocks if they believe in the oil price correction.

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