The Best Way to Profit From $135 Oil
Posted on: May 29th, 2008 | By Chris Mayer | Filed under Oil Investment & Alternative Energy
Penny Stock Oil Companies Leading the Charge to $135 Oil
Penny Stock Fortunes Editor Greg Guenthner recently found one small oil company that has absolutely made a killing off high oil prices. So far, he’s up 48% and has tons of room to grow.
To get in on this penny stock opportunity and all of his others before it’s too late, sign up now…
***********************************
The one obvious place people will automatically look is to own oil and gas producers. That’s not a bad idea at all. But I’ve got another angle here. If you look at the capital and exploration spending of both Exxon and Chevron from 1928-2007, they show spending bottoms in 1948 and 1974. After each bottom, there was a long run of spending.
Spending peaked nine years after 1948. Spending peaked seven years after 1974. If 2005 proves to be the bottom on capital spending — and it seems so, since Exxon only recently announced it would increase its capital spending to $25-30 billion over the next few years, a 25% increase — we won’t see capital spending peak until 2012 at the earliest.
Now, why is this important? Think about what the oil companies spend money on. Where do they go shopping? They go shopping at the oil field services and equipment companies.
So that is where you want to be. Because even if oil has peaked, we’re still looking at years of strong spending by the oil companies. You want to have some exposure to the receiving end of all that spending. Such companies will mint cash. And they give you a little different payoff than owning a straight producer. As Bannister pointed out, it can sometimes be better to own the picks and shovels. You don’t actually own or produce the oil or gas, but your equipment is vital to those that do.
He used Newmont Mining, the big gold producer, as an example of a producer that has profoundly disappointed investors amid what may be the greatest gold bull market in history. Newmont’s costs rose so fast and so much that it never really enjoyed (at least not so far) the higher price in gold. But if you were in some mining equipment manufacturer, you got paid.
So the key takeaways here are these: The price of oil has room to run yet, in part because of the growth in money supply and in part because of pressing international demand. Secondly, even if we already saw oil peak, history says that prices won’t retreat by much over the next several years. And finally, the capital-spending boom by the big oil companies is just getting started, which is great news for investors in oil field services companies.
Regards,
Chris Mayer
Source: The Best Way to Profit From $135 Oil
Pages: 1 2
Pages: 1 2
Chris Mayer is the editor of Capital and Crisis and Mayer's Special Situations. His contrarian essays have appeared on a number of websites and publications including the Mises Institute, the Freeman, GoldEagle.com, LewRockwell.com, FiendBear.com, PrudentBear.com and Individual Investor Magazine. 
Chris that is great but still leaves me scratching my head.
Here’s my take.
Is gas expensive? No the value of the dollar we know is falling. But what is it’s true value or as Warren would say intrinsic value?
In 1980 a gallon of gas peaked at $1.30-1.40 a gallon. Take that value to this inflation calculator. http://www.westegg.com/inflation/infl.cgi
Enter the values , I entered 1.30, the result $3.67 for 2007. Pretty close
The same result for a gallon of milk- in 1929 (.45c)yields a 2007 price of $5.40 very close.
Now take the value of a barrel of oil in 1980 of $37.42 and in 2007 yields 105.42. Do the fed CPI figures look tampered with now?
Why can’t people afford gas? The inflation calculator has the answer.
Take the wage of a journeyman grocery clerk in 1970 which was $7.50
In 2007 he should be making $42 a hour to keep up with the price of gas.
Whoa he only makes $17.80 per hour. The fed is taking $200 per day from the clerk. Buys alot of gas doesn’t it? Now does the wage of a GM union member seem expensive? Nah it’s all in the dollar.
Regards Jim Quam
P.S. Here’s something interesting. Take the value of gas prior to the 70’s gas spike what I would call a baseline.In 1973 oil was $3.60 before it spiked higher into the 80’s . Enter that number into the inflation calculator and you come up with a non crisis price for oil of $17.66. Will it reach that price in a reaction? Don’t know.
While I don’t disagree with what you are saying, I think it’s a little unreasonable to postulate that a grocery store clerk made $7.50 anywhere in 1970. It’s only slightly less than a union apprentice machinist made in the same era, but this would seem to illustrate your point better.