Energy Insights

By: Meridian | Sun, Feb 18, 2007
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The geo-political tensions that propelled Oil prices higher in 2006 may be slipping away. As a trader who pursues trading opportunities in the Energy sector with the same vengeance as a dog chasing a cat up a tree, I almost hate to admit to this possibility.

Several weeks ago, the venerable Dennis Gartman of the "Gartman Letter" advanced the thesis that the Saudi's were not interested in cutting production output. Rather, they were interested in seeing Crude prices fall so as to throw a wrench into the economic wheels of Iran and cool Iran's aggression. With Crude inventories remaining stubbornly well above the 5 year hi/lo trading range, this thesis seems to be getting more plausible by the week.

This week, I happened upon an excellent journalistic piece by Canadian journalist Doug Saunders who ventured (illegally) into Iran to explore the complex world of Mahmoud Ahmadinejad. Turns out that despite all the tough talk, Mr. Ahmadinejad's "mojo" might now be failing. In the 2005 elections he was a long shot, but he had the support of the religious scholars and clerics and that support was enough to catapult him to victory. His platform was one of reforming the economy and sharing the oil wealth with the poor. But he has since deviated from the plan and has pushed Iran in the direction of becoming the trend-setting religious body in the Middle East while at the same time advancing a nuclear enrichment program. Instead of sharing some of the Oil wealth with the people and spending the balance on furthering the Oil industry, he has bluntly given $1.5 billion in grants to newly wed couples, increased worker salaries by 40%, and imposed price controls on various goods and services such as gas which is now fixed at 35 cents per gallon. Meanwhile, the nation lacks adequate refining facilities and spends billions of dollars to source gasoline supplies from other nations (at a severe financial loss per gallon). The lack of proper re-investment in the energy sector means that some 6% of oil carried through pipeline systems is lost to leakage each day. Relations with the rest of the world continue to deteriorate at a rapid clip. Global financial institutions are refusing to do business with Iranian companies and of course the adversarial situation with the USA is well known. So, from here it would seem that Mr. Ahmedinejad may be headed on a collision course with his religious backers who well realize better than he does that Iran needs reasonable relations with the global economy if it is to grow and prosper. And with these scholars and clerics holding sway over the political and electoral system, Mr. Ahmedinejad may yet find himself on the way out of power despite all his tough talk and grandiose nuclear ambitions. What the ultimate effect of such a move would be on Oil prices is open to speculation at this point. However, I fail to see how it would be bullish.

And this week it was reported that Canadian crude output will rise by 9% in 2007, largely as a result of the big heavy oil projects coming on-line in Alberta. Again, not exactly the type of statistic to make the energy Bulls jump for joy.

But, despite this less than rosy situation, I am not the type to roll over and give up. Equities in the energy sector are not going to go to sleep. Something, somewhere will always be moving. And believe me, I will find it and I will apply my technical chart analysis to it to advise subscribers when to get in and when to ring the cash register.

To give you an example of the lengths I can go to, take a look at the following chart:

This is a chart of Blue Pearl Mining - a Molybdenum producer that is well on its way to fame and fortune. Note how MAC-D has recorded a positive crossover and note how RSI has now just crossed over 50. This stock is a buy. But you are probably wondering if I have now lost my mind talking about a mining stock in an energy newsletter. No I have not. On the contrary, Molybdenum is a metal very much in demand these days. Its primary use - an alloy element in carbon steel and stainless steel. As oil output from Canada ramps up, so to will the rush to build additional large diameter pipeline capacity. Molybdenum is one of the key ingredients in the grades of carbon steel used for large diameter pipelines. Stainless steel will see increased demand as refineries in the US retrofit themselves to be able to process this influx of heavy Crude oil. So you see, sometimes making money in the energy sector is not always about just picking an energy stock. And that is what sets the Energy Central Letter apart from others out there. When I say I will go to great lengths to find trading opportunities for my subscribers I mean it !!

And speaking of pipelines, I will leave you this week with one final example to consider. The following chart is of Pembina Pipelines Trust. Pembina owns a vast array of pipelines in Alberta, Canada which move a goodly portion of the oil from the tar sands in Ft. McMurray to the markets. Several weeks ago I advised readers to accumulate a position in this Trust because of its exposure to this profitable business segment. Those subscribers who followed my advice and bought at C$16 or better have been amply rewarded this week with a nice gain as Pembina has now broken out of a sideways consolidation pattern and moved higher. I am almost thinking that somebody out there may be contemplating a takeover run.

If the Energy sector intrigues you, take the time to explore how you can subscribe to Energy Central and keep fully abreast of trading opportunities. Point your browser to and have a good look around the site. You'll be glad you did and we would really enjoy having you as a subscriber.




Author: Meridian

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