The bloodbath in oil continues.
Yesterday, oil dipped below $30/barrel for the first time since December 2003. Just 18 months ago, a barrel of oil cost $106.77.
Oil is off to a horrible start in 2016. The price of oil has fallen every day this year, shocking many Wall Street analysts who called a bottom in the $35-40 range.
On Monday, The Wall Street Journal reported:
Morgan Stanley issued a report this week describing an environment “worse than 1986” for energy prices and producers, referring to the last big oil bust that lasted for years. The current downturn is now deeper and longer than each of the five oil price crashes since 1970, said Martijn Rats, an analyst at the bank.
Global investment banks Goldman Sachs (GS) and Citigroup (C) now expect oil to drop below $30. And Morgan Stanley (MS) warned earlier this week that oil could fall as low as $20 a barrel.
• The world has too much oil…
New technologies such as “fracking” have unlocked huge reserves of oil. Since 2008, U.S. oil output has jumped 74%. And last spring, U.S. production reached its highest level since the 1970s.
The Organization of the Petroleum Exporting Countries (OPEC), a cartel of major oil-producing countries, is also pumping at record levels. OPEC produces 40% of the world’s oil.
• Low oil prices have crushed U.S. oil companies…
Shares of Exxon Mobil (XOM), the largest U.S. oil company, have fallen 26% since June 2014. Chevron (CVX), the second-largest U.S. oil company, is down 37%.
The companies that sell equipment to the oil industry are down big, too. Schlumberger (SLB) and Halliburton (HAL), the two largest oil services companies, are down 39% and 55% since June 2014.
• Oil companies have drastically cut spending…
The global oil industry has already cut 250,000 jobs. And more job cuts are likely coming. Energy consulting company Wood Mackenzie estimates that $1.5 trillion worth of oil projects in North America can’t make money even at $50 oil.
• Many U.S. oil and gas producers can’t pay their bills…
The Wall Street Journal explained on Monday:
As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts…
More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn…
• U.S. oil companies borrowed nearly $200 billion between 2010 and 2014…
Industry debt levels jumped by 55% during the “boom times” when oil was over $100/barrel. With oil at $30 today, many companies can’t pay their debts. According to The Wall Street Journal, North American oil and gas producers are losing $2 billion each week due to low energy prices.
Like most commodities, oil is cyclical. It goes through big booms and busts. Right now, the industry is going through its worst downturn in decades.
Eventually, oil will bottom out. We’ll get an amazing opportunity to buy the best oil stocks at bargain prices.
But for now, oil is still in a sharp downtrend. The world simply has too much oil. We recommend avoiding oil stocks for now.
• Louis James, editor of International Speculator, has a way to profit from the oil…
Louis is our resource investing guru. His specialty is finding small miners with the potential to return five or ten times your initial investment. Today, Louis thinks the plunge in oil is creating an opportunity to profit.
But Louis isn’t buying oil companies. He likes airlines, as he explained in the December issue of International Speculator…
The airline business is very sensitive to oil prices. Airline stocks often move up when oil drops…
Going long on a great, profitable airline with lots of growth on tap is a virtual way to short oil, without risk of being forced to cover if oil rises.
Jet fuel, which is made from oil, is a major operating expense of airlines. From the third quarter of 2013 to the third quarter of 2014, revenues for Louis’ favorite airline stock jumped 17%. And its quarterly profits more than doubled.
You can learn about Louis’ favorite airline stock by trying a risk-free trial to International Speculator. Click here for details.
• On December 23, we warned you of the biggest threat to your wealth in 2016…
At Casey Research, one of our key goals is to warn you about anything that can affect your finances. That’s why we investigated a serious danger that no one else is talking about…
This threat is far more dangerous than a stock market collapse, a severe economic depression, or even a currency crisis. And it’s much more likely to happen.
We’re talking about a financial terrorist attack…an attack that could wipe out the money and stocks you own in an instant.
Think about it…if you have $50,000 in the bank, what do you really have? These days, it’s certainly not a claim to hard assets like gold or silver. And it’s certainly not real cash in a vault. What you have are digital bytes in a computer. A cyberattack could erase these in seconds…causing your money and stocks to vanish.
• Hundreds of cyberattacks have happened in the U.S….
Here are a few:
➢ In 2013, a team of Russian hackers stole $1 billion from more than 100 U.S. banks.
➢ In April 2015, hackers broke into President Obama’s personal email.
➢ In May 2015, hackers breached the Internal Revenue Service database and lifted information from 300,000 private tax returns.
Hackers have also broken into “secure” databases of government agencies. The Federal Reserve, Department of Defense, and CIA have all been hacked.
• Recently, we learned of a cyberattack on America’s infrastructure…
Iranian hackers infiltrated a dam in Rye, New York. Rye is a small town located just 20 miles northeast of Manhattan.
The cyberattack remains classified. We don’t know all the details. But, according to The Wall Street Journal, the hackers gained access to the dam’s control system.
• A major cyberattack in the U.S. is inevitable…
Cybersecurity expert Mary Galligan recently told Bloomberg News that a U.S. cyberattack is “the FBI’s worst nightmare.”
Unfortunately, it’s a matter of when, not if, a major financial terrorist attack will happen. It’s a no-brainer for America’s enemies to launch a cyberattack against our financial system…
Think about it…funding and organizing a large-scale terrorist attack takes months or years of planning. It can require coordinating dozens of people. It can cost an enormous amount of money.
Or you could take a handful of very smart people, get them a few computers, and launch a major cyberattack…one that could shut down entire industries, cause a stock market crash, and cause an explosion of inner-city violence.
• We recommend moving a significant amount of money outside the digital financial system…
Keep enough paper cash to cover three to six months’ worth of living expenses. You can store your cash in a safe or public storage unit. You could even bury it in a waterproof container in your backyard.
Some might call us crazy for recommending this. But remember, America’s financial system is almost entirely digital. Your money and stocks are just digital entries. They could vanish in a cyberattack.
Holding a significant amount of physical cash will allow you to take care of yourself and your family should the “unthinkable” happen.
If you’re interested in other ways to protect your money from financial terrorism, read this special report: “How to Protect Yourself from a Financial Terrorist Attack.” We did hundreds of hours of research learning how to protect against financial terrorism. You’ll read insights from top cybersecurity experts, and seven essential steps to protect your money from financial terrorism. Click here to get a copy.
Chart of the Day
Louis’ favorite airline stock is racing higher…
Today’s chart shows the performance of Louis’ favorite airline stock since oil prices peaked in June 2014. This stock is up 61% since then. The S&P 500 is down 1% over the same period.
As long as oil stays low, this company should continue to earn big profits. And, as we mentioned earlier, the global economy still has far more oil than it needs.
Delray Beach, Florida
January 13, 2016
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