If Charley Maxwell and Amy Jaffe Are Right, Now May be a Good Time to Sell Shares in Big Oil Firms
Submitted by EnergyTechStocks.com
Have you noticed that when the spot price of oil goes up, the stock prices of oil giants like ExxonMobil go up too? But if two leading oil analysts are correct, rising oil prices should serve as a warning about the future financial health of the western world’s oil giants.
When Charles Maxwell, senior oil analyst at independent brokerage Weeden & Co., told EnergyTechStocks.com last February (in a series that continues to capture global attention) that he sees U.S. pump prices going as high as $15 a gallon in a few years, part of his reasoning was that oil companies presently are in the process of drawing down their own inventories. Eventually those inventories will be exhausted and oil companies won’t be making the gargantuan profits they are today, because rather using their own low-cost crude, they’ll increasingly have to buy crude from national oil firms and on the open market at much higher prices.
Amy Myers Jaffe, associate director of Rice University’s energy program in Houston, further raised the red flag on Big Oil’s ability to maintain profitability when she told the New York Times last month that the oil industry “is an industry in crisis.” Her point was that oil production has started falling at all of the major Western oil companies.
Put the two together (lower production and increased inventory drawdowns) and you’ve got a bunch of companies whose stock prices should be going down, not up, when crude prices rise, a concept Wall Street eventually will grasp.
But, you may ask, given all the money these oil companies have socked away, aren’t they still good investments? Our answer is, they would be if they were investing heavily in new energy technologies which, according to New York Times columnist Tom Friedman, represent the next industrial revolution. But Pavel Molchanov, alternative energy analyst at the brokerage Raymond James & Associates, told EnergyTechStocks.com that, “in general, these companies are still almost entirely focused on ‘traditional’ energy.”
That could be a road to ruin, given the skyrocketing costs of drilling for energy deep offshore, in the Canadian tar sands, and north of the Arctic Circle.
Asked which major oil companies are doing the most in the alternative energy area, Molchanov said that BP (British Petroleum) “is ‘arguably’ the ‘greenest’ of the majors,” thanks in part to it being one of the world’s biggest solar cell producers. He added that Chevron is active in geothermal power.
