Energy Complex In Recovery Mode, Says Dr. Joe Duarte
Duarte added: Several factors may be converging. First, OPEC seems to have actually stuck to its production cuts, a first in recent memory for the cartel, well known for cheating on its quotas. Some of the production cuts, though, could be both accidental, and incidental, as Nigeria's production is off some 20% over the last two to three years due to rebel activity.
Other contributing factors are likely to be the general decline in production, such as that experienced by Indonesia, as well as Venezuela. Non-Opec production has also fallen in Russia, as well as Mexico, which means that if OPEC stuck to its guns this time, the production squeeze is more meaningful.
So here's the potential scenario for investors and the economy. Let's say that the global economy, or just the U.S. and China start to experience a rebound, even a feeble one, where China continues to grow at its projected 8% clip, and the U.S. grows at a nominal rate of maybe 0.1 to 0.5%, as measured by GDP.
With OPEC and non-Opec production decreasing, you can see the potential for prices to start climbing, in the markets, and at the gasoline and diesel pumps.
For integrated oil companies, that would mean a boost to their bottom line, as a slight increase in sales at higher prices, even with a rise in feedstock, would still be profitable. For oil service companies, rising demand would mean a return of business, both in maintenance as well as exploration. And for crude oil itself, rising demand, in the face of tight supplies would mean lower prices.
Duarte's conclusion: The $40 price area seems to have been the bottom for crude. Now, traders have to see what they can do about pushing prices above $50 on crude. After that, anything is possible.
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Duarte partners with the Investors Resource Center at Investrend Information (http://www.investrendinformation.com).
Duarte's IntelligentForecasts.com (http://www.intelligentforecasts.com) provides free news coverage and analysis, and his daily articles and news summaries offer recommendations and analysis for ETFs, and individual stocks in the technology, health and biotechnology, and energy sectors. Duarte has combined expertise in health care, energy, and the effects of politics and global intelligence on the financial markets offer a unique blend of insight and information to thousands of active investors and political and intelligence aficionados around the world on a daily basis.
He is the author of: Futures And Options For Dummies, Successful Energy Sector Investing, Successful Biotech Investing and co-author of After-Hours Trading Made Easy. In early 2001, in Successful Energy Sector Investing, he correctly predicted that Venezuela's political problems could lead to an energy crisis in the United States. He has also appeared as a weekly guest on Market Mavens Radio and has logged appearances on KNX radio in Los Angeles, Financial Sense.com radio, and Wall Street Radio.
One of CNBC's original Market Mavens, Dr. Duarte has been writing about the financial markets since 1990. His articles and commentary have been featured on CBS Marketwatch, Barron's, Smart Money, Medical Economics, and in Technical Analysis of Stocks and Commodities magazines. In 2003, Doctor Duarte received second place, in the professional section, of the Medical Economics Investment Challenge with a 12-month return of 42%.
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