This past week, crude oil prices notched up their largest weekly drop since September. And now, nearly everyone is proclaiming the “oil sky is falling.”
If you listen to the news media, oil analysts and other so-called experts, you’ve recently heard things like this:
“Oil’s going to $80 a barrel… or below.”
“The world economy is grinding to a halt.”
“North Dakota is going to be the next OPEC.”
“We’re now exporting more oil than we’re importing.”
None of these statements are true, but they make great fodder for TV news junkies, and get investors to hit the sell button.
I really like the last one. I’ve had two of my colleagues tell me this one. I just smile, because it simply isn’t true. Not even close.
You see, they’re pointing to refined oil products, like gasoline and diesel. And in that context, it’s true that we’re currently importing a little less than we’re exporting.
That makes for a flashy headline, and is sure to get their reader’s attention. But it really doesn’t tell the whole story. Far from it.
Here’s the really important statistic: Overall crude oil imports far outweigh crude oil exports. That won’t change in my lifetime, or yours. I don’t care how old you are. Are we producing more oil? You bet.
The Bakken, the Eagle Ford and Niobrara shale plays are all significantly contributing to America’s newfound wealth of extractable crude. But we’re not producing anywhere near enough to satisfy our daily demand for the black goo.
Here’s the real statistics, right from the Energy Information Administration. These figures are 2010 data, and haven’t significantly changed for 2011.
Total U.S. petroleum imports? 9,440,000 barrels per day.
Total U.S. petroleum exports? 2,024,000 barrels per day.
Where I went to school, those numbers mean we’re importing over four times more than we’re exporting. I’ll let you do your own math.
Perception is everything when it comes to oil prices
The real question is: Where are oil prices going from here? I maintain they’re still headed north. Nothing has changed, except perceptions. And changing your perception in the face of fundamental facts is a dangerous thing. Especially if you’re betting real money on stocks.
Today, for instance, oil is up. Why? Because the perception of just a little positive progress being made in Europe, or maybe just not as much negative news. When the Europeans finally do solve their issues – and they will – oil prices will be on the move up again.
Global growth isn’t stopping. It may be slowing down, but that just means the growth in the demand for oil will slow. It will still be growing, just not as fast. That’s an important point investors need to understand about oil.
Here in the United States, data suggests the economy continues to improve. The Institute for Supply Management’s Manufacturing Index rose to 52.7 percent in November. That’s up from 50.8 percent in October.
Any reading above 50 percent is viewed as economic expansion. The number has been above that important level for that last 28 months. That doesn’t sound recessionary to me.
And let’s keep in mind that while oil had a precipitous drop in the last week, it’s still up for the year. WTI crude oil is up about five percent and Brent is up nearly 15 percent from a year ago.
How should investors play oil right now?
If you already own oil stocks, consider adding to your position. Chances are they’re either below where you bought them originally, or much cheaper than they were last week.
If you’re thinking of starting a new position in companies like Anadarko Petroleum Corporation (NYSE: APC, Stock Forum), BP plc (NYSE: BP, Stock Forum), or Chevron Corporation (NYSE: CVX, Stock Forum), right now might be a great time to do so.