14 June 2010
Say goodbye to less than $67 a barrel oil forever? Oil back above $74, Day Trader's Pick For This Week: Transocean (NYSE: RIG)
I've been following oil very closely since the Deepwater Horizon drilling platform sank out in the Gulf.
Back on April 15th, oil hit this year's high at $87.26. The Deepwater Horizon exploded on the night of April 20th. The next day, oil barely budged as the extent of the oil spill was not even known.
On May 3rd (first trading day of the month), oil tested the $87.26 resistance, by hitting an intraday high of $87.17.
Oil headed South on May 4th only to bottom with it's low in May on the 25th with a $67.15 low.
Since then, as the real extent of the Gulf Oil Gusher Disaster became better known, a few things have happened to cause oil to start a slow grinding upward rise in price:
1. The Federal government has announced a shake up of the MMS, meaning no more Bush/Cheney/Obama friends of Oil being planted in the governmental regulatory agency which was supposed to overlook deep sea drilling and mining in the USA.
2. The Feds placed a temporary moratorium on offshore drilling despite Governor Bobby Jindal begging the Feds to put back to work his Louisiana drill workers laid off by the moratorium.
3. BP has opened field offices in all the Gulf States to handle a raft of lawsuits brought on my failing tourism, fishing, etc.
4. Transocean and Halliburton employees interviewed by CNN and 60 Minutes have told versions of the explosion which all coincide on one point, i.e., a BP official made the choice to keep drilling despite many a worker's worries about unsafe and untried drilling practices. BP officials were under pressure to get the well drilled. Safety was not on the mind of the BP official who told Transocean and Halliburton officials that BP was demanding the drilling continue and screw safety procedures.
5. Several notable Oil experts are saying their are plumes of toxic dispersant/oil mixes which are hundreds of miles long out in the Gulf which are going to play hell with sea life. The extent of what these plumes might/will do to sea life and Gulf Coast economies is unknown at this time.
6. More than one pundit has said BP should withold paying dividends to its investors.
7. More than one pundit has suggested BP will be required to go bankrupt.
8. More than one pundit has said the Federal Government should place BP in receiver ship.
9. The bad news about the disaster and BP has affected, negatively, all oil sector stocks, but especially BP, Transocean and Anadarko (company which owns a minority share of the spewing Deepwater Horizon well).
With all of the above, oil found a new bottom in price (since the Deepwater Horizon exploded) on May 25th at $67.15
My Thoughts:
As more people realize tougher governmental regulations are coming to oil rigs, more people will realize the cost of drilling will continue to rise. And costs will especially escalate on deepwater rigs.
As a believer in Peak Oil, I want to plant one solid idea in your brain today: all the easy to find oil has been found and is decelerating in oil recovery. All the hard to find, hard to drill oil and hard to process oil (offshore, tar sands, oil shale, etc.) are going to skyrocket in expense for the next 20 years before the free world has switched transportation and energy to more greener energy.
I daresay today, we will never see oil trade for less than the May 26th low of $67.15 again in our lives.
That said, I recommend we concentrate on how to profit off what is sure to be a long trend in rising oil prices from here.
In the coming weeks, I'll toss out some ideas here from both traditional and Green energy sectors.
The Deepwater Horizon Catastrophe is a game changer in the way the USA explores for energy. Traditional energy (oil, Nat Gas, coal) are going to go up as more regulatory oversight is demanded by US citizens. Keep all of the above in mind as you invest for the short term and long term.
I recommend all day traders to follow Transocean (NYSE: RIG) at Friday's close of $46.85. I will be "scalping" this trade every day this week. Do not, repeat, DO NOT buy and hold this stock for the long term as BP is now threatening to sue Transocean and vice versa.
Transocean has already received hundreds of millions in Insurance payments for the Deepwater Horizon disaster. It won't be long 'til Congress and BP will seek to get their hands on some of that money.
Transocean's P/E is now at a miniscule 5.20.
Transocean is now 53% off its high in less than a month.
Recommendation: use both 5 minute and 15 minute charts to trade in and out of RIG. Scalp it long, scalp it short. Do not hold over night.
Sincerely,
Rock Trueblood
p.s. Asian shares rose this morning as well as oil. S&P futures (3:45 AM EST) are now 3 points above last Friday's close. There are strong down trendline resistances for the S&P 500 and the Dow Industrials. Will the bear market continue, or will we break to the upside today?
Regardless, pick your sectors well. Only buy and hold defensive stocks which will never go out of style.
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