| What is your best bet on profiting from the upcoming energy crisis? | |
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Another section of this site is devoted to links to various articles and essays on the subject that I’ve found interesting. They might help in trying to make sense of what might happen when substances start hitting the fan. The site will soon be transformed into something more community oriented. Among other things, readers will be able to submit and comment on different investment opportunities. Stay tuned Buying oil itself: Investing in crude oil futures is a safe bet if you believe in the price rise but don’ t want to go guessing beyond that. NYMEX Crude Oil Futures Quotes and Market Prices If you're not familiar with investing in futures, you might want to check out http://www.orionfutures.com/fut101.htm#intro Today, the initial margin for brent crude oil futures is around 5% of contract value. That translates to a 100% profit for every 5% crude oil prices rise, as well as similar losses. Oil futures shooting up from 50$/barrel to 90$/barrel would mean a 1600% gain. A huge leverage but oil is very volatile in so the risks are there as well. Oil and gas companies: Gazprom (RTS:GSPBEX) Gazprom is the world’s largest gas company and accounts for 23% of the world’s gas output. The company operates in Russia and is a major exporter of gas to European countries. "Gazprom will enter the liquefied natural gas market and begin test deliveries to the US in 2005" - more Suncor Energy (SU) Canadian integrated oil & gas company. Produces light sweet crude & other oil products from the oil sands. "Suncor currently expects cash operating costs to average $12.00 to $12.50 per barrel for the second half and full year [2004]" - more Extracting oil from bitumen is very expensive. However, a lot natural gas is required to extract oil from tar sands and the natural gas price is closely tied to the price of oil. It takes 1000 cubic feet of gas to convert a barrel of bitumen into light crude (at todays prices 1000CF of natural gas costs around 14% as much as a barrel of crude) Canadian Oil Sands Trust "operating costs to average $16.91 for the quarter" - more While Suncor has a retail arm that operates Sunoco gasoline stations, Canadian Oil Sands Trust has a 100% leverage on oil sands. Exxon Mobil Corp (XOM) Exxon Mobil Corporation is engaged in the energy and petrochemical business. Through its divisions and affiliated companies, Exxon Mobil operates or markets products in the United States and approximately 200 other countries and territories. Stockholders will probably benefit from rising oil prices but not as much as owners of smaller companies. Long term prospects are also a bit questionable for huge oil companies if the industry is slowly dying. Burlington Resources (BR) Correlation 0.176704 Regression 0.097904 Burlington Resources Inc. is engaged in the exploration, development, production and marketing of natural gas, crude oil and natural gas liquids (NGLs) Valero Energy Corp (VLO) Correlation 0.372889 Valero Energy Corporation is an independent refining and marketing company that owns and operates 15 refineries having a combined throughput capacity of approximately 2.4 million barrels per day. Buying other commodities: Gold and silver are very likely to do well in times of crisis. Inflation also drives these two up. More on inflation and oil prices. Owning physical gold or silver might be useful in rough times but more money is to be made in the producers of these two metals. The average gold mining stock moves 2 percent for each 1 percent change in gold prices. For someone with little understanding of the mining business the best way to pick a company is to look for the highest leverage to gold prices, in other words companies that spend the least $ per ounce extracted and have the lowest profit margins. Kinross Gold (KGC) At a cash operating cost of about $220 per ounce, KGC is a relatively high-cost producer, thus providing good leverage to a rising gold price. It has a small hedge position, but has adopted a strong no-hedge policy. Newmont Mining (NEM) cash operating cost ~$200 per ounce Bema Gold (BGO) cash operating cost ~$340 per ounce Durban Roodepoort Deep (DROOY) cash operating cost ~ $330 per ounce Relationship to oil: Amex Gold Bugs Index HUI Correlation -0.389146 Gold And Silver Sector Index XAU Correlation -0.359738 
Alternatives: USEC (USU) supplies low enriched uranium for commercial nuclear power plants SASOL A South Africa based oil and gas group. Worlds largest manufacturer of oil from coal. Plug Power (PLUG) Ballard Power Systems (BLDP) the most hyped fuel cell company Distributed Energy Systems (DESC) Hydrogenics Corp. (HYGS) a fuel cell manufacturer that also produces fuel cell testing equipment Renewables: EcoSystems Renewable Energy Stocks Renewable Energy Stocks by Odysen "There are few pure plays in alternative energy. "You’ve got some big players, and you’ve got a million little guys," Stuebi said. "There are very few midsize businesses that are healthy, robust companies. The majority of renewable energy businesses are venture-capital backed or totally mom and pop."" - more Biodiesel industry is growing very fast. "In Europe around 50 manufacturers currently produce approximately 1.5 million tonnes of biodiesel. Their total capacity is around 2.1 million tonnes. If the aim of the new directive from Brussels is attained, European demand will increase to around ten million tonnes per year" - more The Biofuels Corporation (BFC:LSE) D1 Oils - D1 Oils’ objective is to become a global sustainable, low cost producer of biodiesel and supplier of crude vegetable oil. Operates in UK, South Africa, Pacific Asia and India. Currently in flotation Southern States Power (SSTP.PK) Wind: Vestas Wind Systems (VWS.CO), based in Denmark Gamesa Corporacion Tecnologica (GAM.MC) a spanish company that makes wind turbines and operates wind farms. Also produces airplane and helicopter components which make up 20% of the companys profits. NEG Micon A/S , also danish REpower Systems AG, a German manufacturer of wind turbines Evergreen Solar Inc., a U.S. manufacturer of solar power products Echelon Corp. an American company that makes metering equipment to maximize energy efficiency Short positions: "A spike in oil prices preceded nine of the 10 postwar U.S. recessions, says the Federal Reserve Bank of Dallas. But oil price increases were not followed by recessions four times in the 1980s and 1990s" - http://www.forbes.com/energy/2004/08/09/cx_pm_0611oilbrief_6.html As oil prices go up the economy goes down but some companies more so than others. The most oil dependant companies must be the airlines. Delta Airlines (DAL) - has no hedge positions at all - Correlation 0.176865 Regression 0.386422 American Airlines (AMR) - no hedge positions - Correlation 0.436712 Regression 0.538421 Southwest Airlines (LUV) is the airline best prepared for high oil prices. 80 percent of its fuel is hedged for the remainder of 2004 with prices capped below $24 per barrel, 80 percent hedged for 2005 with prices capped at $25 per barrel and 45 percent hedged for 2006 with prices capped at $28 per barrel. Ryanair (RYA) "Ryanair bets on falling oil price" - more Others: defence stocks bear funds hybrid cars If oil prices keep going up, yet a serious depression is somehow avoided, companies that focus the most on energy-effective cars will of course be the most profitable. As to which these are - I have no idea yet. Effective regenerative braking seems to be one of the things to be on the look for. My picks: quoting a study by G. David Haushalter a, Randall A. Heron b, and Erik Lie: "... gold prices have a much larger effect on the equity value of gold firms than oil prices have on the equity value of oil producers." * Oil - stock price correlation and regression is calculated using historical quotes downloader, correlation calculator and simple linear regression calculator Some of the numbers seem pretty random and I am searching for more informative metrics that tell something about a particular stocks past performance vs crude prices. Regression is similar to the beta-value but in this case the stock’s performance is compared to Crude Oil instead of, for instance, the S&P 500. The time frame used for most of the calculations is 26/02/95 - 19/09/04. |
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