I should have learned my lesson.
Last week, I distinctly remember reading how prices at the pump would inevitably decline. One of the reasons, naturally, was that U.S gasoline demand had fallen about 3.3% year-over-year on a four-week moving average. According to the Energy Information Administration (EIA) U.S. fuel demand has dropped by 19.9 million barrels a day.
I'll admit that those facts gave me hope over the weekend when I took a trip to see a good friend get married. Normally, a trip for me to Philadelphia takes no more than an hour and a half, assuming traffic is normal.
My trip ended up taking over five hours. I expected to pass some horrible accident scene, yet as each grueling mile passed by, I realized there were simply too many drivers.
So much for less driving.
Perhaps I just happened to be on the wrong road at the wrong time, but the bumper-to-bumper traffic, sweltering heat and broken air conditioner would make anybody question whether the U.S. is driving less. Paying roughly 40% more for gas compared to last year doesn't help matters either.
The question is: Will things get any better?
Watching crude prices tumble after reaching a record $147.90 per barrel on July 11, 2008 has caused a number wild predictions. I couldn't help but shake my head as one in particular called for oil to fall below $60 a barrel before the end of the year.
Don't hold your breath waiting for that.
OPEC may have raised their output by 200,000 barrels per day recently, but we can expect the oil markets to remain tight, at least through 2008. There's too many factors stacked against producers. Non-OPEC producers will play a pivotal role in how oil prices will move. Those countries are going to have a difficult time making up the loss from decline rates.
But let's push aside the doom and gloom for a few minutes. The most important thing the U.S. can focus on to alleviate higher oil prices is to lower its addiction to foreign oil. Specifically, I'm talking about crude shipped from the Middle East. I mentioned this problem last week.
Although the U.S. will never completely eliminate its need for oil imports, certainly every barrel will help. Considering the amount of time it'll take to develop some of those resources, we need to start soon.
Investing in the Bakken Boom
Ever since the United States Geological Survey released their assessment on the Bakken formation in North Dakota and Montana, there has been a rush by companies to get their own piece of the action.
The easiest mistake to make is to take a large number of reserves for granted. I've heard people say, "Well, they said there's 4 billion barrels there, so that's going to solve all our problems."
That's not exactly how things work, unfortunately.
Remember, it's not how much oil is sitting in the ground. Rather, the problem comes down to the flow rates.
It's true that producers have been able to advantage of horizontal drilling technology and fracturing techniques to make production profitable. Production, however, comes at a hefty cost in the Bakken, too. Like I mentioned previously, a single well can easily cost more than $5 million dollars.
Investors looking into the area have two ways to play the Bakken formation. No matter who you listen to, don't forget that there is always a degree of risk involved with any oil exploration play. The rewards can certainly be worth it.
Western Standard Energy Corp. (OTC: WSEG), for example, is operating in North Dakota. The company announced they are participating in a drilling partnership to fund operations for two Bakken wells.
Since energy companies across the board have been falling lately, now is a perfect opportunity for investors to pick up some quality shares at a discount.
If you're looking for a less speculative play, take a look into XTO Energy (NYSE: XTO). With a $23.56 billion market cap, XTO isn't exactly a small exploration company trying to hit the big jackpot. The company recently jumped into the Bakken shale after acquiring Headington Oil Company last week. The purchase added 352,000 net acres in the play to XTO's assets.
The U.S. side, however, is only one way to invest in the Bakken. North Dakota and Montana are only part of the Bakken story. Next week, I'll tell you the why Canadian side of the Bakken is starting to heat up, and more importantly, who stands to benefit from the Saskatchewan oil boom.
Until next time,
Keith Kohl
P.S. Many of you have already seen the profits that can be made from the Bakken formation, but it wouldn't be fair if I didn't show our new readers where they can find those plays. If you're interested, feel free to check out those solid gains for yourself at The $20 Trillion Report.
Subscribe to