This from Jeff:

BPENER is a momentum-based indicator that generates buy and sell signals based on oversold and overbought conditions. The oil sector is overbought when BPENER rallies above 70 and then turns lower. The four most recent sell signals are marked with red circles. Each signal was profitable for anyone taking a short position on the oil sector.The oil sector is oversold whenever BPENER drops below 20. It generates a buy signal (the blue circles) when it turns higher from oversold levels. The last time we got a buy signal from this indicator, back in March, my Advanced Income subscribers took on three trades. Each of them generated at least a 25% return in just one week.

We are facing similar oversold conditions today.

Ideally, I’d prefer BPENER to drop below 10 before turning higher and giving us a buy signal. But as you can see from the rising gray trendline on the chart, last week’s reading of 13.64 may be as close as we get.

• The Dow Jones Industrial Average remained steady above 12,000.

• The leading indicator of existing home sales was down over 21% from the previous year, and the official unemployment rate was just beginning its upward creep by crossing the 5% mark.

• The first official admissions of the “R” word. In early April 2008, the International Monetary Fund (IMF) declared a 25% chance of a global recession, and Federal Reserve Chairman Ben Bernanke told Congress that gross domestic product “could even contract slightly.”

• The novelty of bailouts began. Bernanke also assured Congress that the Fed’s emergency authorization of a loan against $29 billion of Bear Stearns assets wasn’t putting taxpayer money at risk: “I feel reasonably confident that we’ll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that.”

• The dollar’s six-year slide against the euro, hitting its lowest ever at $1.60 in late April. It also fell below the 7-yuan mark in China for the first time.

• And oil, comfortably above $100/barrel, was heading for its summer crest of $147.

A scant 12 months later, the Dow is trying to stagger back from a plunge to 6,500. Home sales are hinting a possible turnaround, unemployment (even the official, conservative figures) is expected to reach double digits before long, “recession” and “bailout” are household words (often accompanied by four-letter ones), the dollar is recovering… and a barrel of oil is worth half that hundred dollars. Hardly worth pulling out of the ground.

What happened? And even more important for us as investors, what’s going to happen?

The Casey Energy Opportunities team pulled together the pieces of the oil sector picture that other sources tend to scatter or ignore. We’ll give you a broader understanding of the drivers within the oil industry, the markets in which they operate, and how you can use that knowledge to push your profits upward.

The Oil Industry Now: A Rock, a Hard Place, and a Supply Glut That Isn’t

Everyone who drives a car or heats a home with petroleum has welcomed the fall in oil prices from their high in the summer of 2008.

While it’s hard to argue that filling your tank at $2 per gallon is a lot easier on the wallet than $4 or $5 per gallon, the broader economic effects of such low oil prices are troubling.

Leading the concerns is the drop in oil exploration and drilling that accompany a drop in price. Below the $50/barrel mark – and for many companies the bar is closer to $65 even for conventional fields – oil producers typically spend more money getting oil out of the ground than they can recoup by selling it. At the same time, turbulent financial markets have tightened credit. These two factors have pressured producers to allocate exploration budgets away from drilling projects and toward meeting debt obligations and day-to-day operating costs instead.

The plunge in prices has consumed the cash buffers of even the major oil companies. ConocoPhillips, for example, announced in January that along with eliminating 1,300 jobs and writing down $34 billion in assets, it was also planning to cut its 2009 investment budget by 18%. Exploration projects are part of both writedowns and spending cuts. The results of curtailed exploration are two-fold. First, some oil companies will be simply unable to survive the economic crisis. Second, supply in the longer term is being sacrificed to stay afloat now.

Storage facilities are bulging. The chart below shows the contents of the Cushing, OK, storage facility — where NYMEX deliveries take place — have recently doubled from their average 2008 volume. Along with a host of other facilities around the world, it got this way because of an unusually dramatic contango at the beginning of 2009. (A contango is a kind of market inversion, when the current [spot] price dips lower than the future price.)

In January, the spot price of oil plummeted as low as $37/barrel, while futures for July delivery were trading for $52. That meant if an oil company could buy and store product for seven months, it could lay out $37/barrel and be guaranteed a profit of $15 – or 40%, minus costs – in July. And indeed the buying frenzy took off, reinforcing the decision to turn off the drills.

So for the moment, we are artificially flush with oil, and demand has dropped as the global economy will likely shrink for the first time since World War II. It’s no surprise that oil prices have been staying down.

Many analysts say we won’t feel the effects of declining exploration for a few years. But the numbers are emerging already. According to the U.S. Energy Information Administration (EIA), non-OPEC countries demonstrated an average annual growth in supply of 570,000 barrels/day from 2000 through 2007. In contrast, they recorded a drop last year of some 300,000 barrels/day.

At the same time, OPEC appears to be conforming to its production cuts of 4.2 million barrels/day, begun in September 2008. The oil cartel is known to announce cuts that its members don’t actually follow; it’s in their economic best interest, if only in the short term, to sell all they can. But this time, oil has plunged far below levels to sustain their economies. Even Saudi Arabia expects to run a budget deficit this year.

OPEC, which produces about 40% of the world’s oil, would like to see prices around $75/barrel, at least. But the fragile global economy would have a difficult time absorbing such a price at the moment, and the cartel decided against further production cuts when it met in March. In fact, some three weeks later, Saudi Arabia actually announced a price cut on all its grades of crude to European, North American, and Mediterranean markets – a dramatic attempt to spur demand amidst high inventories.

So, entwined as it is with the economy, the oil industry is currently in a conundrum. The fix it requires – higher prices for its product – will choke the framework in which it operates.

At the same time, we’ve got supply problems ahead.

How Did We Get Here Anyway?

Like many aspects of the markets, movements in price are driven partly by real factors and partly by perception. Rags-to-riches-to-rags-to-riches Texas oilwoman Sue Sanders summed it up when she noted wryly in her 1940 autobiography that “nothing succeeds like reports of success.”

Last year’s run-up of oil was no exception: part real, part report. Some of the real factors:

• The weak U.S. dollar. The United States is not the only country that buys oil in U.S. dollars. The price per barrel is pegged to it, in fact. When the dollar is weak, the cost of U.S. exports drops; and indeed by December 2008, the U.S. trade deficit had fallen to its lowest in nearly six years ($39.9 billion, according to U.S. Commerce Department data). However, a weak dollar means it takes more dollars to buy a barrel of oil. Global concerns over the strength of the U.S. economy, including America’s ever-rising level of debt, had undermined the dollar to the point that OPEC members began to murmur about dumping it for the euro or a basket of currencies.

• Geopolitical turbulence in oil-producing countries. The Iraq war, oil-related militancy in Nigeria, and Iran-Israel-U.S. posturing over nuclear issues were hotspots in the first half of 2008. The average nightly news covered casualties in Iraq, but industry watchers tracked attacks on pipelines and oil facilities. Likewise, in Nigeria, sabotage and oil worker kidnappings by militant groups such as the Movement for the Emancipation of the Niger Delta (MEND) regularly shut down facilities to repair, negotiate, or improve security. And as spring warmed up, so did the war of words between Iran and Israel. By early July, Iran had gone so far to indicate it would move against shipping in the Persian Gulf if attacked. The United States would have moved next, of course… thus driving up the price of oil in the jittery oil markets, which depend on Persian Gulf shipping lanes.

• Unusually low crude and gasoline supplies entering the 2008 summer driving season. In early April, the EIA reported significant drops in supply – gasoline declined by 4.53 million barrels and crude oil by 3.2 million barrels, a one-two blow that surprised and worried industry watchers. Behind the gasoline slump were lower refinery margins, called crack spreads. In mid-March, when refineries would normally be coming off their maintenance schedules to churn out gasoline for summer driving, the margin for turning a barrel of crude into gasoline was negative for the first time in three years. Refineries sought profits in other oil products, and the markets responded to the expected imbalance in supply and demand.

• High demand. China is a stand-out here, and for more than its usual energy appetite. China has a penchant for aiming to break records – from its goals in five-year plans and building projects to its haul of Olympic medals – and in the first half of 2008, it was visited by some dramatic examples: a great earthquake and major snowstorms, events that disrupted the country’s energy industry. Combine that with the fact that China was also preparing for the Beijing Olympics in August, and it’s easy to understand why it was buying oil very heavily until mid-summer.

On the perception side of price drivers, it’s hard to overlook the fact that the market push stayed strong in the face of increasingly gloomy economic data. Casey Research was earlier than most in predicting the economic crash (we published reports such as “The Coming Currency Crisis” in June 2006), but by spring 2008, even officialdom was dancing around the word recession.

Normally, news of burgeoning foreclosures, plummeting home sales, spiking personal and business bankruptcies, rising unemployment, and other economic indicators would tend to exert a bearish influence. After all, consumers generate 70% of U.S. economic activity, and if they stop or cut back on driving to work or the shopping mall, telephone relatives or business partners instead of flying out to see them, reduce purchases of items containing plastics, turn down the thermostat, and other weather-the-storm measures, oil consumption should decline.

It took months for all these drivers to realign – but as we all know, they did, and then some. The chicken-and-egg debate, whether oil’s sky shot triggered or portended the economic debacle in the closing months of 2008, will require more distance and data to resolve. But it’s true that the dollar had started its comeback by mid-summer, supply had caught up, geopolitics had settled a bit, China backed off on its buying, no major hurricanes hit – but economic realities did.

Meanwhile, Congress jumped up and down and cried “Speculators!” “OPEC!” “Oil producers!” in tidy sound bites.

The Next Big Plays: Where You Need to Be

Oil companies are influenced by the range of market drivers and economic conditions according to size. The junior oil producers, those with market capitalizations of $250 million or less, have the small-business advantage of flexibility when times are good. These times aren’t good, of course, and even well-managed juniors with good projects are in trouble. Their vulnerability is in the credit market. You’ve likely heard of credit lines being revoked and refinancings denied to people with impeccable credit. Now imagine pitching a drill project without a wallet full of assets ready to lay on the table.

Mid-tier producers, with market caps between $250 million to $2 billion, will look to mergers and acquisitions to survive. The majors ($2-20 billion market cap) and Big Oil (over $20 billion) will also be shopping. With low oil prices shutting down exploration, development, and even production, these companies will be looking to replace their reserves instead by purchasing smaller, solid companies with proven production. It’s simply cheaper.

We see two ways to profit from this trend.

First, we buy shares in undervalued, producing companies that are profitable even below $40/barrel, are best of peer, and own large reserves. These are the companies that Big Oil will be looking to acquire. One such company, an oil sands producer, is currently a part of the Casey Energy Opportunities portfolio.

Second, we believe that owning a potential consolidator is the best position. As debt load and low commodity prices overtake them, junior producers will be forced to consolidate their projects. We currently own one such candidate, and are scouting for others with such muscle. Consolidators will be purchasing projects from the bank at 25 to 30 cents on the dollar.

Our tactics have already paid off handsomely in the last six months: all our recent recommendations have been on fire. A few tripled their value, and one generated a return of 540%.

As we’ve seen, supply problems are looming, no matter what timetable of Peak Oil you may believe in. With increased demand inevitably come higher prices. Our approach at Casey Energy Opportunities positions us to take advantage of the trend in both the short and longer term. And we guide our subscribers not only when to buy or sell, but also when to take profits and a “Casey Free Ride” to eliminate risk.

We’d like to offer you the opportunity to kick the tires of Casey Energy Opportunities RISK-FREE for 90 days, with 100% money-back guarantee. Click here to give it a try.

Source: The Price of Oil

After all, the economies in both China and India are apparently continuing to grow at a fairly rapid pace, and those countries’ demand for transportation and other forms of energy are thus likely to keep pace. For some minerals, the period of high prices from 2005 to 2008 has produced a surplus. But no such effect has been seen in the oil market, as large new discoveries are hard to find.

If we’ve learned anything in the last few years, it’s that political risk is very important in oil investments. It’s not just a question of outright nationalization – as is true in Venezuela. Other greedy countries, like Nigeria, boosted the royalties payable when oil prices were high, and have shown little willingness to reduce them again now that they have declined.

Hence, it’s once again time to look at investments in the one important energy source whose friendliness to the United States and decent quality of governance can be assured.

I’m speaking, of course, about Canada.

Canadian oil-and-gas investments are attractive for three reasons.

• Canada’s political stability makes it a buffer against turmoil from less-stable oil sources.
• The country’s conventional oil-and-gas sources add substantial capacity at reasonable prices to U.S. domestic oil production; these sources are profitable at almost any plausible oil price.
• And Canada’s tar sands in the Athabasca region represent a potential source of oil, with approximately 1.6 trillion barrels of theoretically recoverable reserves. That’s potentially larger than the Middle East, but with two major problems: The cost of production is high and the environmental impact could be substantial.

That last point – and the two major problems it identifies – is key. At low oil prices, both factors make tar sands problematic; it is politically more difficult to overcome environmentalist objections if secure oil sources do not appear a priority. However, at high prices, environmentalist problems go away, although they may add to extraction costs. However, if prices escalate rapidly, extraction costs also tend to escalate, so oil-shale-producers reaped less of a bonanza than they might have in 2007-2008.

Now that oil prices have stabilized, the cost increase has slowed, so that (for example) Suncor Energy Inc.’s (NYSE: SU) tar-sands-production costs in this year’s first quarter rose only 6% from the previous year, hitting $28 per barrel. Since oil prices are currently around $58 a barrel, that leaves plenty of profit margin.

The Canadian oil business is still rather more entrepreneurial than the international majors – Calgary is that kind of place. I remember an instance when I was working as a banker back in the 1980s. I’d spent the weekend in New York with my girlfriend, and then turned up for a scheduled Monday lunch with some oilmen at the Ranchmen’s Club. Not thinking, I’d ordered my normal urban cocktail, an Apricot Sour. This was quite rightly treated with great derision, and I was firmly presented with a bullshot (vodka and beef bouillon) – in a pint beer mug!  Got the deal, I’m proud to say, but was pretty worthless for the rest of the day.

The message: Investing in Calgary oil is a little like dining at the Ranchmen’s Club; you have to have certain qualities of fortitude and stamina!

Canadian oil companies you might look at include the following (when looking at earnings, the first quarter of 2009 is a good guide; 2008 is all over the place because of the bizarre behavior of oil prices):

Canadian Natural Resources Ltd. (NYSE: CNQ): Primarily a conventional oil producer, this company’s operations are centered on Western Canada, the North Sea and offshore West Africa (Gabon), though it is also building an oil sands plant north of Fort McMurray, Alberta. It is trading at about 14 times earnings when you strip out misguided risk management, and about 80% above book value. It’s over-leveraged, too. Conclusion: A decent company, but pricey.

EnCana Corp. (NYSE: ECA): North America’s largest natural gas producer and conventional oil producer, with operations in Western Canada, offshore Nova Scotia and the Western United States. It is a leader in oil recovery through steam-assisted natural drainage. Based on first-quarter earnings, its Price/Earnings (P/E) ratio is about 9, and its Price/Book (P/B) ratio is about 1.7. It has only moderate leverage. Conclusion: This one looks like a decent value; it even pays a semi-respectable dividend, yielding 2.8%.

Imperial Oil Ltd. (NYSE: IMO): Majority-owned by ExxonMobil Corp. (NYSE: XOM). Even though it’s now headquartered in Calgary, Imperial is the least Calgary-ish of Canada’s oil majors. It owns 25% of Syncrude Canada Ltd., the oldest tar sands project, and also explores for and produces conventional oil in Western Canada and in the offshore Atlantic provinces. Imperial also refines and markets petroleum, owning a chain of service stations and convenience stores, and produces petrochemicals. It experienced a sharp drop in first-quarter earnings, its P/E based on the lower first-quarter results is about 40, with the stock trading at four times book value. Conclusion: Overpriced.

Nexen Inc. (NYSE: NXY): The former Canadian arm of Occidental Petroleum Corp. (NYSE: OXY), it owns 7% of Syncrude and another (Long Lake) start-up tar sands project, and has oil producing operations in Yemen, the North Sea, the Gulf of Mexico, Colombia and offshore West Africa. Its P/E is about 20 based on first-quarter results and it is very over-leveraged. Conclusion: Given the non-Canada risk, not very attractive.

Suncor Energy Inc. (NYSE: SU): A major tar sands play, Suncor has now agreed to merge with Petro Canada (NYSE: PCZ), a deal that’s expected to close in the third quarter. Suncor also produces natural gas in Western Canada and operates refineries. Petro Canada has tar sands, natural gas, pipeline and retail operations. It is priced at about 30 times annualized first-quarter operating earnings, but oil prices are up about $10 since then (which should boost its earnings), and its tar sands production is ramping up. Conclusion: At 2.3 times book value, with a respectable balance sheet, it’s a decent bet on oil’s growth sector.

Talisman Energy Inc. (NYSE: TLM): The former BP Canada (NYSE ADR: BP), it was spun off in 1992, grew through acquisitions, and now has a diversified portfolio of holdings. It’s active in Western Canada, the Western United States, the United Kingdom (including a wind-farm operation), Norway, Colombia, Peru, Algeria, Tunisia, Indonesia, Malaysia, Vietnam, Australia and Qatar. It has sold $2.5 billion worth of operations to raise cash. Talisman has a P/E ratio of about 8, based on its first quarter, or 11, based on continuing operations in that quarter. It has a P/B ratio of about 1.4, and only moderate leverage. Conclusion: An iffy company in terms of quality, but cheap, and is thus worth a look.

Source: The Six Ways to Play Canada’s Oil Sector

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According to the London Times, the price of sulfur has risen from $50 to $500 a ton in under a year. More from this report:

“Shell is one of the most-efficient producers of sulphur,” Barry Clarke, a sulphur market analyst for Pentasul, said. Shell produces about 3.5 million tonnes of sulphur, much of it from its Canadian oil sands business, and its cost, Mr Clarke reckons, is merely the rail freight cost of getting the sulphur to a port, about $25 a tonne.

Mr Clarke agrees that sulphur, once a burden, could earn the oil industry billions this year. “It’s going to show up in the earnings of companies,” he said. The price is expected to rise further with spot cargoes changing hands for as much as $700 a tonne. Demand for metals is also keeping sulphur bubbling, as sulphuric acid is used in the mining industry to leech metal from ore.

“The biofuel boom has kicked off a big increase in the demand for sulfuric acid,” says Chris Mayer in The Daily Reckoning.

“In fact, some 60% of the sulfuric acid ends up in agriculture. The surge in ethanol production is a double whammy on sulfuric acid. First, all that corn needs fertilizers. And second, the ethanol facilities themselves also use sulfuric acid in their own processing. A typical ethanol facility requires 2,000-4,000 tons of sulfuric acid per year.

“Then there is that great demand pull from China and India. Traditionally, these two countries produced what they needed. But now their own rapid industrialization has turned the tables. They’ve switched from being exporters to importers of sulfuric acid.”

Read on to find the only “pure play” on sulfuric acid spot prices — a little-known company that’s one of the world’s largest suppliers of sulfuric acid.

Buyer’s remorse is the feeling of regret you get when you realize you just did something dumb. Like forking over an extra $10,000 for the dual turbo model that performed so well on the test drive, but doesn’t make a difference in bumper-to-bumper traffic… Or paying top dollar for the newest square-head driver that was so forgiving on the driving range, but plays the same as your old driver on the golf course… Or… well, you get the idea.

By this time next month, oil stock buyers will feel the same way.

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Let me explain…

Oil is on an amazing run. It’s headed even higher over time. And oil stocks will be the big beneficiaries.

But if there’s one thing I’ve learned in all my years of trading, it’s this: If all the talking heads on CNBC, and all my buddies, and my wife, and my father-in-law, and my mother are talking about the same thing, then it’s time to sell.

It’s time to sell oil stocks.

I know that’s the dumbest thing you’ve heard all year. And I know the Growth Stock Wire feedback e-mail box is about to get filled with all sorts of comments about how “Jeff must be drinking again.” But stay with me for a moment…

Take a look at the following chart of the Bullish Percent Index for the oil sector…

The Bullish Percent Index is a measure of how many stocks in a sector are in bullish patterns. As you can see, yesterday, the oil sector BPENER closed over 91. In other words, more than 91% of the stocks in the oil sector are running higher.

This chart cannot go over 100, and it rarely goes above 90. When it gets this high, it’s almost always followed by a dramatic decline in the price of oil stocks. (Take a look at what happened to oil stocks back in January… or in July and August of last year.)

Even more important is the negative divergence in the Moving Average Convergence Divergence indicator (MACD). The MACD measures the strength of any move. If a rally is strong, then the MACD makes new highs along with the stocks. If a rally is weak, then the MACD forms a lower high and signals the potential for a change in trend.

The recent rally in oil stocks is weak.

I’m bullish on oil and oil stocks over the long term. Heck, if T. Boone Pickens says oil is going to $150 per barrel this year, then who am I to argue?

But in the short term, oil stocks are susceptible to one heck of a pullback. And if you’re looking to buy into the sector, then you’ll have a much better opportunity one month from now.

Best regards and good trading,

Jeff Clark

Source: The Boldest Prediction I’ll Make This Year

The largest independent auto-finance company lost $300 million last year on its $25 billion auto loan portfolio as defaults rose higher than 7%. What will be next? Credit cards.

Even though interest rates on credit-card debt are sky high, the minimum payments are small, which is allowing people to keep borrowing. At least for now.

Equifax (a leading credit bureau) reports total credit-card balances increased 8.1% in the first quarter of this year – more than double the previous average rate of growth. Naturally, the steepest increases in credit-card borrowing occurred in the same states where the mortgage crisis is the worst. Credit-card balances rose nearly 15% in the first quarter in California and Florida and more than 20% in Nevada.

Like drug addicts, consumers cannot survive without more and more credit, and they’re now turning to the most expensive and unreliable source. They will soon hit bottom.

In the latest issue of my newsletter, PSIA, I tell my subscribers how to profit from the coming collapse of U.S. credit-card debt, which now stands at $1 trillion. If you never read another issue of my letter, make sure you read this one. Click here to learn about a risk-free subscription.

Interested in trend following? Ed Seykota, the system-trading pioneer, composed a bluegrass song outlining the basics of his strategy. Check out The Whipsaw Song here.

Oil prices hit an intraday record above $115 a barrel this week, and Jeff Clark is perfectly positioned to profit from the move. In Advanced Income, Jeff found the one undervalued oil sector: refiners. While every other oil stock is trading at all-time highs, refiners are at 10-year lows.

Jeff created a trade to profit from the turnaround in refiners, and it pays you 8% up front. He noticed a similar trend last month, and that trade is already up 18%. To learn more about Advanced Income and receive Jeff’s latest recommendation, click here.

Energy costs rose 2.9% last month, while food prices rose 1.2%. The Fed cuts interest rates 100 basis points and injects more than $100 billion to prop up the liars and cheats on Wall Street, and I’m paying $5 for a box of cereal and nearly $4 for a gallon of gas. But maybe I’ll soon be paying a little less for gasoline…

It says right here in the Wall Street Journal Republican presidential candidate John McCain wants Congress to put a temporary halt on the 18.4-cent federal gas tax and 24.4-cent diesel tax from Memorial Day to Labor Day.

Tax cuts are the only true economic stimulus the government can offer. Everything else it does is merely a redistribution of seized wealth or a manipulation of the money supply.

China’s sovereign wealth fund recently invested $2 billion in oil major BP. A Chinese investment could soon become the ultimate contrary indicator…

In the past year, Chinese government-controlled entities invested $5 billion in Morgan Stanley, bought 9.9% of Bear Stearns (at around $150 per share), and invested $3 billion in Blackstone Group at the top in private equity.

Our favorite commodities bull, Jim Rogers, had a front-page Barron’s interview recently. Rogers told the same story (long agriculture/China, short banks), but gave some specific stocks this time.

He’s still short investment banks through the Amex Securities Broker/Dealer Index (XBD). He’s short Citigroup (C) and Fannie Mae (FNM). He’s also short some U.S. homebuilders, including Lennar (LEN). Meanwhile, he’s a big fan of international airlines like Lufthansa, Austrian Airlines, and Japan Airlines. He’s bullish on the renminbi, and his only exposure to emerging markets is through China and Taiwan.

If foreign stocks aren’t your thing, maybe you should check out our Monthly Dividend Program. Goldsmith compiled a portfolio of 10 stocks paying monthly dividends, and the portfolio is up 5% in a month.

Readers have already made 9% on an oil stock that yields more than 13%. They’ve also pocketed 9% on a hotel REIT yielding close to 7%. And that’s just capital gains. There are still 120 dividend checks on the way. To receive Goldsmith’s report, which shows you exactly how to pick the best monthly dividend payers and gives you our 10 favorite, click here…

Regards,

Porter Stansberry and Dan Ferris

But it’s not just the EIA that are moving up estimates, traditional under-forecasting oil analysts are doing the same too.

In Reuters’ monthly survey of oil-price analysts at the end of March, the average forecast of the 29 analysts surveyed was $90.55, up from $83.77 in February. Five of the analysts in the survey forecast average WTI prices at above $100 a barrel.

So, I reckon consensus numbers still have room to move higher, boosting the oil sector after the upcoming quarterly reporting season. (Note: Our oil play Royal Dutch Shell (LSE: RDSB) posts its quarterly numbers on 29 April).

WTI futures averaged $72.32 per barrel in 2007, with the 2008 estimate at $101. The EIA also issued a 2009 forecast of $92.50.

Continues below…

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Forecasts are not a reliable indicator of future results. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. Customer Services: 0207 633 3600.

The oil price moved ahead on the news yesterday, but eased this morning to stand at $108.22. This move means that the US gasoline market is also expected to tighten as refiners continue to run refineries at low capacity. The crack spread this morning for WTI Cushing fell $0.621 to $8.992. This is bullish for the oil price because refiners won’t operate at full capacity if they cannot make a decent profit from their operations.

The EIA also said that the projected higher costs for crude oil will contribute to higher petroleum product prices (erm, well done for that analysis guys).

Gasoline prices were projected to average $3.36 per gallon in 2008, up 55 cents from last year. Diesel prices are projected to show even larger increases in 2008, averaging $3.62 per gallon, or 74 cents above the 2007 average price. The government department is also predicting spikes to $4 a gallon in the peak summer driving season.

This report makes me even more convinced that oil is likely to stay above $100 a barrel for the majority of the year. In fact, I’m starting to believe that the Reuters’ consensus view, which has significantly lagged real oil prices, will breach the $100 level in the next few months DESPITE the credit contraction and DESPITE predictions for gasoline consumption to fall by 85,000 barrels per day in the peak driving season.

It’s not just me that has this view, the market agrees with me.

Despite the EIA saying demand will fall, the futures strip price, which is the average price of the next 12-months futures contracts, has edged only slightly lower. (Remember: I said yesterday that this is the data used by companies such as Royal Dutch Shell to do their own financial planning.)

Yesterday the strip price stood at $105.90. News of falling demand has reduced this to $105.19.

The Reuters’ consensus for 2008 stands at $90.55, which lags the futures strip price by 16.9%. I prefer the futures strip price and I am therefore convinced that the oil price will stay above $100 for most of the year. Indeed, I said last month that I thought oil was on the way to $120 a barrel. That is still my view.

One other supporting factor from the report was the fact that the decline in US gasoline demand started during the second half of 2007 and has accelerated so far this year. Over this time period, the oil price has soared.

Regards,

Garry White

PS: should you know anyone else that you believe will find my musing of interest please forward this link so that they can sign up for the service.

PPS: I also write a newsletter each month called Smart Commodities UK which expands on the views expressed in Garry Writes and makes specific recommendations in the resource, infrastructure and biotech sectors. To discover more click here.

Rising crude oil prices have also helped boost oil-sector stocks.

Dow Jones MarketWatch reports that the Dow Jones industrials were up 104 points to 12,713, with 24 of its 30 components moving higher, with financials leading the rise.