It's hard to read the headlines of the past several years and not come to the conclusion that the world, or at the very least the United States, is awash in oil. In fact, the Energy Information Administration announced last week that oil inventories in the United States are approaching an all-time high. Meanwhile, last year, thanks to shale drilling, U.S. crude production rose to the highest level in a quarter century. The United States is set to overtake Saudi Arabia as the world's largest producer of energy.
By most fundamental measures, oil prices should be declining. So why is Brent Crude at nearly $110 a barrel, close to multi-year highs?
As I write in my new weekly commentary, there are a couple reasons that, despite the surge in domestic production, oil prices have reverted back to the upper-end of a multi-year trading range:
By Sumit Roy
Five minutes with Oppenheimer's Gheit on energy.
Fadel Gheit is a managing director and senior analyst covering the oil and gas sector for NewYork-based Oppenheimer & Co. He has been an energy analyst since 1986 and was named to The Wall Street Journal All-Star Annual Analyst Survey four times. HAI's Sumit Roy caught up with Gheit recently to discuss the latest developments in the oil and gas markets.
HardAssetsInvestor: Natural gas inventories have fallen to the lowest level in a decade, yet prices haven't rallied all that much. Why do you think that is?
Fadel Gheit: Gas prices are influenced by the industry's ability to deliver supply rather than by inventories. Gas production will continue to rise because of [associated] gas from oil and liquids-rich plays. In addition, drilling obligations to keep leases will keep output rising.
HAI: What is your price outlook for natural
US energy stocks outperformed Canadian ones last year - but in the last few months, E&P equities in the Great White North have soared. Why? The low Canadian dollar has a lot to do with it, adding an extra 6-10% to the Canadian oil price-which of course is ALL profit.
The second reason is the natural gas prices have rocketed up, thanks to repeated cycles of the Polar Vortex. Canada is a gassy basin, despite all the tight oil finds of the last five years. And lastly, the continued growth of the oilsands - along with the potential of LNG exports off Canada's west coast-have kept a bid under the services sector.
I talked with Chris Theal, CEO of Calgary's Kootenay Energy Fund - as I do every quarter - to help me get a handle on the future of Canadian oil, natural gas and energy services. He has a