By Forrest Lowell

News Flash! The American economy is worth 7% more now than it was 24 hours ago! Of course the economy is not worth more today than yesterday; 20,967 more people are unemployed, thousands more just defaulted on their mortgage, millions of homes went unsold, 10’s of millions of square feet of commercial property continue to be unrented, and the tax payer just lost another trillion dollars. All in all I would say it was a pretty crappy day, unless of course you owned anything with a ticker symbol, then you think today was fantastic. But one needs to ask themselves if anything has changed.

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I think it is fascinating to watch OPEC almost panic over such “low” prices for oil, they have already announced production cuts of about 4.2 million barrels a day and quite a few members are asking for more at their next meeting in Vienna. A cut of 4.2 million barrels a day brings their official quota down to 24.84 million b/d which is now less than a third of global oil production. OPEC does not like to talk about it officially but it is widely believed that they would like oil in the $75-$100 dollar a barrel range. It appears that they are willing to go to great lengths to achieve this which is absolutely great news for Exxon Mobile and the oil sector in general. It appears that OPEC is willing to decrease their influence on the oil markets just to increase the price; to me this is an obviously self defeating plan that is great for both America and America’s oil industry. I am perhaps over simplifying my next statement but I think the oil markets will go something like the following. OPEC is going to keep decreasing production to push the prices up allowing two things to happen; One, Exxon and the other Integrated Oils will invest to increase production in both oil and natural gas because it will immensely profitable for them, and two, the American economy will more rapidly move away from oil in all aspects. Primarily the American and world economies will move towards a natural gas and renewable energy based industry which will further decrease the influence of OPEC over the western world. The US has an ungodly amount of natural gas already proven and I think we have just begun to explore. There is one part of my theory that I am still not entirely sure about, and that is whether the American people will accept paying a bit more for oil supplied by American companies vs. importing it from the middle east. As I see it now the integrated oils and other American companies control the refining capacity in the US and can choose which oil is supplied to them. I would think Exxon would choose to supply their refineries with Exxon produced oil first and imported oil second, but there might be considerable pressure on this decision if the imported oil is considerably cheaper. The easiest and most likely solution to this part of the equation is from Washington D.C. Whether it is some sort of tariff put on oil from the Middle East or a gas tax here in the states so the price of oil is less of a factor in the price of gasoline, I think there is the political will to do something. There are obviously many holes in my belief of what is to come in the energy sector and I will address them in posts to come in the future, but please feel free to point out any and all issues you see and potential solutions. I guess if there is one take away for the stock market it is buy Exxon Mobile and never look back. They are the definition of American capitalism and have rarely let their shareholders down; they did not over invest at $147/barrel and are not under investing now at $43/barrel.

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While picking the bottom is a fools game, a bit of calculus shows that there are signs of improvement.  According to the second derivative of numerous sets of data, the rate of decline is decelerating.  (For those who need a refresher on calculus, the first derivative measures a function’s slope; the second derivative measures how the slope changes.)  (more…)