Is it safe to look?
At one point this morning, that thought must have have crossed your mind.
Don't worry if you spent time wondering whether the markets will recover or not. The Dow dropping more than 2,200 points in six days will do that to you.
Hopefully the triple-digit gain today helped ease a little of your pain. Today's trading, however, isn't the only reason to stay positive.
While we may not see oil top $150 per barrel anytime soon, the fact is that many quality energy stocks are grossly oversold.
Patience is truly a virtue when investing. I've never heard of someone making a fortune from buying high and selling low. After all, our long-term position on energy prices remains unchanged. There's simply too may factors, like peak oil for example, to ignore.
Watching fear take a grip on sellers as they dump shares, I can't help see their action as an opportunity.
Trimming Production and Predictions
The 45% drop in oil prices since July have caused several forecast changes. Last week, the Energy Information Administration (EIA) released their latest Short-Term Energy Outlook.
According to the report, global oil consumption is expected to increase by 300,000 barrels per day in 2008. That marks a 15% decrease compared to estimates from a month ago. Next year is a different story, when consumption is expected to increase nearly 800,000 barrels per day.
Price forecasts are also being changed daily, it seems. Goldman Sachs has again revised their forecast on crude prices. The cut its year-end oil price from $115 a barrel to $70 a barrel. The investment bank even warned that oil prices might tumble as far as $50 a barrel in the near future.
I wouldn't expect oil to ever reach that low.
Remember, OPEC which has repeatedly said oil prices should remain between $80-$100 per barrel. OPEC price hawks like Iran have insisted that oil should be over $100 a barrel and production needs to be cut.
Then again, can you think of the last time Iran was comfortable with the current oil price?
Either way, the drop in crude prices was enough for OPEC to call an emergency meeting in Vienna on November 18, 2008. The question is whether the organization will cut production or not. After the 45% fall in crude prices, a cut appears inevitable, especially if oil drops anywhere near $50 a barrel.
Regardless of the OPEC decision, we can take a note from China. Last month, the country's crude imports jumped 46% compared to a year ago. Clearly, China isn't waiting for OPEC to cut production before adding to their crude stocks.
Investors can take similar advantage from the latest market volatility.
Opportunity from Overselling: These Energy Stocks Are Incredibly Cheap Buys
There's a good chance that every single energy company in your portfolio took a beating last week.
During the 2,200 point drop in the Dow, some investors scrambled to dump their shares. I could hardly believe my eyes as shares of my favorite energy companies plummeted. But rather than feeling panic, I couldn't help see the opportunity here.
Think about it for a minute.
Take a look at Chesapeake Energy (NYSE: CHK). During trading on Friday, shares fell under $12 at one point! As the leading producer of natural gas in the U.S., picking up shares that low is going to make investors a fortune when energy prices rebound.
Another company my readers and I have been following closely is Range Resources (NYSE: RRC). Despite natural gas prices falling alongside oil, Range was still able to post record production levels. In fact, it's the company's 23rd consecutive month of production growth. During trading on Friday, Range hit as low as $23.77 per share.
Now, I'm not trying to suggest that investors should blindly grab anything they can. Make sure you are comfortable with a long term position in your prospective company. Even though we may not have hit the bottom of this crisis yet, there's certainly an opportunity to profit during the panic from buying quality, undervalued, and downright cheap energy stocks.
Until next time,
Keith Kohl
P.S. Even during a crisis there's opportunity. Most of my Energy and Capital readers know this fact firsthand, too. Rather than running for cover during this financial storm, my readers have been able to make some serious gains from some of the best energy companies out there. It wouldn't be fair if I didn't offer you a chance to join them. If you're interested, you can find out more about the $20 Trillion Report here.
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