Goldman Sachs warning to investors on a “substantial pullback” in oil prices triggered a 3% drop today. Oil prices have risen 33% since mid February due to fears in supplies and production with unrest currently in the Middle East. OPEC reassured the market that they were compensating for any slowdown in productions of other nations in trouble.

Panic selling could take hold and drive prices back to $100 per barrel if prices hold near $106. Investors last week bought contracts at $107-$112. On the other hand prices at the pump continue to rise and are expected to break more records. We continue to support buying energy stocks, especially given the current market. Buy on peoples fears and sell on their optimism.

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Below is a table ranking the top 15 countries by proven oil reserves. The U.S. government estimates the world reserves totaling 1.35 trillion barrels.

Rank
Country
Oil Reserves
Production
Consumption

1.
Saudi Arabia
260 billion barrels
9.76 million barrels
2.43 million barrels

2.
Canada
175.2 billion barrels
3.29 million barrels
2.15 million barrels

3.
Iran
137.6 billion barrels
4.18 million barrels
1.69 million barrels

4.
Iraq
115 billion barrels
2.4 million barrels
636,000 barrels

5.
Kuwait
101.5 billion barrels
2.5 million barrels
372,000 barrels

6.
Venezuela
99.4 billion barrels
2.47 million barrels
723,000 barrels

7.
United Arab Emirates
97.8 billion barrels
2.79 million barrels
492,000 barrels

8.
Russia
60 billion barrels
9.93 million barrels
2.74 million barrels

9.
Libya
44.3 billion barrels
1.79 million barrels
264,000 barrels

10.
Nigeria
37.2 billion barrels
2.21 million barrels
272,000 barrels

11.
Kazakhstan
30 billion barrels
1.54 million barrels
241,000 barrels

12.
Qatar
25.4 billion barrels
1.21 million barrels
147,000 barrels

13.
China
19.2 billion barrels
9.14 million barrels
18.81 million barrels

14.
United States
19.2 billion barrels
9.14 million barrels
18.81 million barrels

15.
Brazil
11.65 billion barrels
2.57 million barrels
2.52 million barrels

Source: http://www.eia.doe.gov/

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American Airlines announced they will suspend their growth plans for 2011. Primary factor in this decision is the rising cost of oil in a volatile market and a recovering economy. Their plan is to fly less domestically resulting in higher ticket prices. The airline industry according to AMR spokesperson Tim Smith, have hiked fares 12 to 14 times.

AMR has been hammered for the year down close to 30%, currently at $6.56 -0.18 (-2.67%). American Airlines lost an estimated $50 million in revenue due to the cancellation of over 8,000 flights during storms across the U.S.

American plans to phase out their fleet of MD-80’s with the newer and larger Boeing 737-800’s that are 35% more fuel efficient. Luckily for American they were able to hedge 35% of their estimated fuel consumption for 2011 at $2.52 a gallon. Currently the cost of one gallon of fuel is $2.83, up almost 40% from 2010.

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The worlds richest man Lebanese-Mexican Carlos Slim announced he is entering the energy sector. The Grupo Carso consortium (diversified retail, construction, and industrial conglomerate) controlled by Slim purchased a 70% stake in Tabasco Oil Co. LLC, an oil exploration and production company. Tabasco Oil has rights to a field in Columbia.

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Oil prices are back in the spot light as the crisis in Libya worsens. Oil shot up $87 a barrel with investors concerned that OPEC production could be affected. Libya exports about 1.0 million barrels a day of crude, if the current situation get worse, oil exports are likely to freeze and the current $87 a barrel could break $100 immediately.

As unrest takes over the middle east it looks appealing to buy oil stocks for the short term!

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Oil prices rose to their highest level since October 2008, hovering around $87 a barrel.  Prices are up 8.3% since March. With a steady economic recovery and weaker dollar, commodities are on the rise.

OPEC feels comfortable with oil prices between $70 and $80 a barrel. There are no immediate plans to increase production so prices are likely to hover around $80 or higher.

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The price of oil has risen to $83 a barrel as result of the following factors:

• A weakening U.S. Dollar
• Strong demand from China (China reported that their oil imports rose 14% last year)
• Investors buying commodities as a hedge against inflation
• Demand in heating oil due to a string of cold winter weather in parts of the U.S., Europe, and Asia.
• Nigerian instability (Chevron pipeline attacked, reducing production) 

JBC Energy:

“Investors might be overvaluing and thereby multiplying the impact of cold temperatures,” said JBC Energy in Vienna. “To make a significant impact the chilly weather will have to remain with us for months and not weeks.” 

KBC Market Services:

“If prices continue to rise next week, it will be tempting to conclude that we are back in the casino-like oil market conditions we saw in 2008,” KBC said in a report.

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Oil on Friday declined more than 2.5% to about $76 a barrel as fears mount about the possible defaults in Dubai financial markets. Adding to the pressure was the boosted demand for the U.S. Dollar. However, Dubai’s recent news only indirectly contributed to the decline. Crude oil has been sinking since it peaked at $82 a barrel in early November. A large inventory in the U.S and discouraging economic data is more to blame for the decline.

Additionally, the market was trading at low volumes that could have exaggerated prices!

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