Tuesday, December 13, 2005

Four more years! Four more years!

MSNBC/Reuters: Goldman Sachs: Oil prices to stay high for years.


LONDON - Oil prices, which hit record levels this summer, have entered a "super spike" phase that could last for four more years as global demand booms and supply growth slows, Goldman Sachs analysts said on Tuesday.

"We disagree with what appears to be a growing consensus that crude oil prices reached their peak levels earlier in 2005," said the firm's Global Investment Research.

The analysts said oil demand remained resilient and supply growth lacklustre, prompting them to keep their average U.S. crude price forecast for next year unchanged at $68 a barrel.

They predicted oil prices could see 1970s-style price surges to as high as $105 a barrel during this period.

"With WTI oil prices on-track to average about $57 a barrel in 2005, we think the past phase will be remembered as the first of what could be a four-to-five-year 'super-spike' phase," their report said.

Goldman Sachs first mentioned a super-spike phase in March, five months before U.S. oil prices skyrocketed to a record $70.85 a barrel. Prices have since eased.

U.S. oil futures on the New York Mercantile Exchange have averaged $56.59 so far this year.


The bank expressed doubt that OPEC producers, which supply a third of the world's crude, would be able to quench booming demand.

"It is the seeming insurmountable challenge of OPEC's needing to add real new capacity on a just-in-time basis that gives us so much confidence that we are in the super-spike phase," it said.

OPEC, which has been pumping at the highest rate for 25 years, is set to boost its spare capacity to 3.1 million bpd by the end of the 2006.

Despite hurricanes, high fuel prices and increased conservation, energy consumption in the United States remains strong, as does China and India, the bank said.

"Ultimately, we agree that the energy bull market will roll over once demand destruction really begins," it said. "We simply do not believe we have arrived at that point."

The International Energy Agency, the West's energy watchdog, estimated world oil demand ould grow at an average of 1.8 million to 2.0 million barrels per day through 2010. Last year's demand growth of 3 million bpd was the highest for a generation.

BusinessWeek: Where the Action Is in Energy.


"A good buying opportunity for many investors." That's what Standard & Poor's analyst Tina Vital sees in many oil and natural gas stocks at the moment.

Q: What portfolio weighting does S&P currently recommend for energy stocks?

A: The current sector emphasis for energy is market-weight. Energy as a segment of the S&P 1500 is 9.9%. It had broken 10% some months ago, and several years ago had been down around 6%. So we've seen it increase as a percentage as energy becomes a greater portion of our market. It's S&P's opinion that energy still has legs.

Q: Tina, can you give us your top picks? You mentioned a few earlier.

A: Yes. Starting with the integrated oils, my 5-STARS picks are Chevron, Conoco, Exxon Mobil, Total (TOT ), a French company with big plays in frontier regions, and Valero Energy (VLO ). These integrated oils all offer dividend rates of 2% to 3%.

Now, as far as the exploration/production companies go, there are 5-STARS ratings on Canadian Natural Resources (CNQ ), Chesapeake Energy (CHK ), Devon Energy, and Occidental Petroleum (OXY ). These four E&Ps have dividend rates of between 0.5% and 2%.

We also have some pipeline companies that we're very bullish on, having a 4-STARS rating on Amerigas Partners (APU ), Buckeye Partners (BPL ), Enterprise Products Partners (EPD ), Kinder-Morgan Energy Partners (KMP ), and Magellan Midstream Partners (MMP ). All of these pipeline companies that Roy Shepard covers have dividend rates of 6% to 8%, very high.

Last but not least, there are three 5-STARS oil and drilling companies: GlobalSantaFe, Nabors, and Superior Energy Services. Only GSF has a dividend, around 1.3%.