Charles Maxwell shares important tips on the volatile oil market

The senior energy analyst of the Weeden & Co, Charles Maxwell, recently said that the hydrocarbon world is fractioned into two parts which are oil and gas. Oil is hitting the headlines these days and it has experienced the modest fluctuations which constantly takes place in any market. From the past few months, the price of the oil has jumped due to arising political fears from the Middle East.  But there are conventional signs of a sufficient supply of oil across the global market. This looks strange, so we would take a deeper examination at the situation.

There exists a great deal of inventories available in the world, and OPEC is collapsing their production figures and exceeding stated production limits. Theoretically, there is around five million barrels of excess oil produced and it is not utilized effectively. But the Saudis have only 3 1/12 million barrels to spare. After the production and consumption of about 87.5 million barrels per day, still there are five million barrels left.  We do not face any problems in the supply of oil and the market functions as usual. The price of oil is functioning such that there is a tight supply. But it is a conundrum.

Charles Maxwell stated that currently, oil supply and demand are poised, but the markets have commenced to render discounts; this would cause some agitations down the road. He articulated that the people should be very alert and should not purchase stocks of companies which have experienced significant up-turns, and it is not a good idea to purchase them cheaply. So, the investors must purchase a stock that has long-term fundamentals which are strong and have not reached their peak. At present, we are using around 31 billion barrels every year, but on average we are finding only 10 billion new barrels per year. During 1965 to 1970, the exploration of oil reached the peak and we found around 50 billion barrels of oil, but we used only 15 billion barrels. So we accumulated large amounts of oil for the future purposes.

By 1988, the rate of oil discovery fell down and reached around 23 billion; the same year, the consumption of oil touched 23 billion barrels. Many people did not pay proper attention to this, and they stored only a minimum amount for future use. The discovery rate reduced and the consumption rate increased dramatically, which was not a good sign. Many oil wells across the world are decelerating their output gains since they are depleting, as wells and the gas pressures within them are getting weaker. New oil wells could not meet the current oil demand. Today, political and geological factors play an important role and they have retarded the momentum of development. Demand continues to surpass the supply so to create equilibrium while cost of the oil is growing. Athabasca oil sands in Canada have plenty of resources which can produce oil in large amounts at the cost of 10 to 30 USD per barrel.

Further, American investors can purchase stocks of Suncor and Cenovus. These two oil sands companies have shown attractive results in recent months. So, Charles Maxwell recommended investors purchase stocks of these two Canadian companies since investors can hold assets in Canada and increase their commercial exchange values via diamond, gold, wheat, silver, oil and gas etc. Moreover, the banking system in Canada is better than the United States and the finances and taxes are more favorable to investors.

- Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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