Global oil production is near record highs. Last year, global oil output reached its highest level in at least twenty-five years, according to the U.S. Energy Information Administration (EIA).
High oil prices were a big reason for the surge in production. Between 2011 and mid-2014, the price of oil hovered around $90/barrel. But oil peaked at $106 last June, and it’s been falling ever since. Today, a barrel of oil goes for about $45.
Even though the price of oil has been cut in half, global oil production is still near all-time highs. The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 12 oil-producing nations, is still pumping a record amount of oil. And it plans to increase production next year. In the U.S., oil supplies are still about 100 million barrels above their five-year average.
E.B. explains why some countries have no choice but to keep pumping oil:
Oil is the foundation of many countries’ economies. Take Venezuela, for example. Venezuela produces over 2.5 million barrels-per-day (BPD) of oil. Oil exports make up half of the country’s economic output. The country is so dependent on oil that cutting production would be economic suicide.
This is happening across the globe. Giant state-run oil companies continue to pump because it’s the only way for these countries to make money. This is why global oil production has not fallen even though the price of oil has been cut in half. In many areas, production has actually increased.
• The extra oil has weighed on oil prices…
Weak oil prices have hammered virtually all oil companies…including the biggest oil companies on the planet.
Profits for ExxonMobil (XOM), the largest U.S. oil company, fell 52% during the second quarter due to weak oil prices. Its stock is now down 24% since oil peaked last summer.
Chevron (CVX), America’s second-biggest oil company, earned its lowest profit in twelve years during the second quarter. Its stock price is down 34% since last summer’s peak.
The entire industry is struggling. XOP, an ETF that holds the largest oil explorers and producers, has dropped 52% over the same period.
• But oil tanker companies are making more money than they have in seven years…
Unlike oil producers, oil tanker companies don’t need high oil prices to make big profits. That’s because they make money based on how much oil they move. Their revenues aren’t directly tied to the price of oil.
On Monday, Bloomberg Business explained why oil tankers are making the most money they’ve made in years.
The world’s biggest crude oil tankers earned more than $100,000 a day for the first time since 2008…
Ships hauling two-million-barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.
• Casey Research’s favorite oil tanker company is cashing in on higher shipping rates…
On August 13, E.B. Tucker told readers of The Casey Report about a company called Euronav (EURN).
According to E.B., Euronav is the best oil tanker company in the world. The company has one of the newest and largest fleets on the planet.
Euronav’s sales more than doubled during the first half of the year. The company’s EBITDA (earnings before taxes, interest, and accounting charges) quadrupled. And because Euronav’s policy is to pay out at least 80% of its profits as dividends, the company doubled its dividend payment last quarter.
Investors who acted on E.B.’s recommendation have already pocketed a 5% quarterlydividend. Based on its last two dividends, Euronav is paying an annualized yield of 12%. That’s not bad…considering 10-Treasuries pay just 2.07% right now.
Euronav’s stock is up big too. It has gained 15% in the past month alone…while the S&P just gained 1%.
E.B. thinks Euronav is just getting started:
Euronav’s stock price has rocketed in recent weeks, but it’s going to go much higher. Euronav is a great business and the economics of shipping oil are improving. The market hasn’t fully caught on to how good things are in the industry right now.
Shipping rates are ripping higher, but the supply of ships can’t keep up with demand. The largest supertankers can carry 2 million barrels of oil at a time. They measure three football fields long. These ships take years to build and cost about $100 million each. Shipping rates should stay high as the world works through this huge oil glut.
It’s a great time to own shipping companies. And Euronav is the best of the bunch.
Euronav has shot up since E.B. recommended it, but the buying window hasn’t closed. In fact, Euronav is still below E.B.’s “buy under” price of $17.50.
• The price of silver just hit a three-month high…
Silver is surging after hitting a six-year low last month. It’s climbed for six days straight, and is now up 8.7% since last Wednesday.
Louis James, editor of International Speculator, says the Federal Reserve helped fuel silver’s recent rally.
The Fed’s decision to not raise rates last month gave silver a boost. And that’s because silver is both an industrial metal and a precious metal.
Regular readers know the Fed hasn’t raised its key interest rate in nine years. Many investors thought the Fed would finally lift rates last month, but that didn’t happen. The Fed decided to keep rates at effectively zero because the global economy is slowing.
Silver is a safe haven asset like gold. People have used it as money for thousands of years. It’s preserved wealth through financial market meltdowns, depressions, and wars. Investors buy gold and silver when they’re nervous about the economy or stock market.
By deciding not to raise rates, the Fed signaled that the U.S. economy still needs extremely cheap credit. Investors who bought silver likely took this as a sign that the U.S. economy isn’t healthy enough to stand on its own, without easy credit.
As Louis mentioned, silver is also a key industrial metal. In fact, industrial uses account for more than half of silver’s global demand. Silver is used in dental fillings, solar panels, and batteries.
By not raising rates, the Fed kept the cost of borrowing money incredibly cheap. Cheap credit makes it easier for businesses to grow, and that supports industrial demand for silver.
Louis went on to say that demand for silver is rising while supply falls:
The number of industrial uses for silver continue to multiply, even as current silver supplies deplete and mines shut down. The ingredients for a “perfect storm” in silver are there. Has it started? Too soon to say, but the ingredients are in place.
Courtesy: Justin Spittler
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