May Idea of the Month: Chinese Oil

You don’t need me to tell you about the stocks we should probably all be watching — Proctor and Gamble, Coca Cola, Colgate Palmolive, Wal Mart … when they fall, as they have been lately, is the time to think about restocking your larder with the large companies who will continue to dominate the world into the foreseeable future. And to tell the truth, I came very close to looking at two of my favorite megacap purveyors of essentials for you today: Anheuser Busch InBev (BUD) and Diageo (DEO).

But with oil falling in recent weeks on fears of global economic slowdown, I think we might have an opportunity to take advantage of a bit of disassociation: a falling oil price, assuming it continues to fall, will hurt many producers, it will cut profits for many exploration and produc

tion companies, and it will possibly slow down the mad race to search for oil, though that race didn’t slow all that much when oil dropped briefly to $30 last year. If oil falls another $20, though, the new consumers in the emerging world will only redouble their consumption from the meager levels of today and yesterday, and the state-connected oil firms with a long-term vision of petroleum independence are not going to stop exploring.

What comes to mind first here is Brazil and Petrobras — There may be trouble ahead if Petrobras ends up having to compete with new local oil companies, or if the government gets too greedy with its golden goose as Mexico and Venezuela have, but Brazil seems to be fully aware that their massive offshore discoveries are a key to their economy’s future. The Tupi field and the other offshore finds in Brazil are extraordinarily expensive to drill, and will be hard to harvest, but Petrobras and the Brazilian government didn’t call off the project when oil dipped. That’s one reason, incidentally, that I’m still quite confident in Seadrill (Petrobras is a major customer) … even with all the sturm und drang about deepwater drilling: deepwater oil exploration is not going to stop, even if it gets embargoed for a while in the Gulf of Mexico or offshore the US while regulations or technology improve, and Seadrill is continuing to hit the next level operationally with more and more rigs in the water, to the point that the dividend looks like it ...

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