Yesterday, you saw gold pass US$960. Today, you’re seeing gold at US$970… and the headline oil price is just under US$103 as we type.
Now it gets interesting.
Real commodities have been pushing pretty hard lately… and the oil price is on the verge of an all-time real high. This means that, despite all inflation in the prices of stuff over the years, oil is more expensive than it’s even been… anywhere… anytime in history. Oil is harder for you to buy than it’s ever been. It’s making a big move at that price ceiling. It’s rebelling like a defiant, pimply teenager clambering out his window at night to get to the wild party his parents have forbidden.
For investors, there’s something important about that rebellion. Given the chat we had with our technical analyst Gabriel Andre yesterday, we think there’s something you should know. Oil prices are now rising on momentum.
What does that mean? Well, the price of oil and its refined products usually take their cues from various economic and political events. If a refinery explodes in the U-S of A, petrol and heating oil both rise in price.
If OPEC members squabble over who will get the biggest cut of oil profits (it’s usually Saudi Arabia)… then, on hearing the news, traders everywhere will pick up their gaping jaws and bust their computer mouses, violently clicking the “buy” key in anticipation of a production cut.
If a major oil producer makes a big new find, oily traders will sell off with equal fervency.
But now… things are a little different. We’ve never been past this rung in the ladder before. Oil is trading with a lot of speculation. That doesn’t mean the fundamentals no longer mean anything. But it means there’s more of an emphasis on the technical aspect of the oil price.
Gabriel will be especially useful to you here. He’s plied his trade for major hedge funds. He knows his stuff. We’ll save the cream of his analysis for Diggers and Drillers, and Australian Small-Cap Investigator. But now that oil’s a rogue commodity, you’ll need to hear regular bits and pieces from him. We’ll keep you updated on the basics. Be prepared to read more on the topic soon.
Origin Energy (ASX:ORI) stepped up to the pulpit yesterday and delivered its six-month report for the second half of 2007. The company preached a glorious sermon of imminent profit growth, inspirational gas exploration, and general electricity retailing salvation.
The congregation burst into rapturous applause, pushing Origin up 8% after a week-long losing streak. The company’s operating profits in the period were actually down 3%. But it’s been growing market share. A lower price strategy usually does the trick there. It means giving up a little bit of short-term gain for a longer-term benefit: more customers.
“Al, you’re just been yammering on about the high oil price. Now you’re talking about growth at Origin. What gives? Shouldn’t the high oil cost cut into energy retailers’ margins?”
Ah yes, you’re spot on. It should. But the nice thing about Origin, and most other Aussie retail energy investments, is that they focus on natural gas and oil extraction. By that… we mean they rolls up their sleeves, clench their jaw, then go out and darn well finds their own fossil fuels. Hallelujah.
So Origin is really a producer and retailer at the same time. The higher the oil price is, the bigger profits are. This move in oil is good for the retail side of Australian energy.
Markets and Money