They Said It Would Never HappenStansberry & Assoc. teased a pick and shovel company in the oil sector last week. The reasoning is what intrigued me. They said there are over 20 billion barrells of oil in each of the 5 new oil shale plays in the US. The effects will bring cheap energy to the US. Factories and jobs will return to the US because of this cheap energy. Prices of oil will drop significantly and so will the price of oil stocks just as what happened to the prices of natural gas and associated stocks. I would guess the tease is NOV but would really like to know what others think about the possibility of the other events related to oil.
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The market price of oil is determined by how much it costs to produce the last barrel of oil necessary to meet current demand. In the US, despite the fact that some shale reserves might be profitable at $50 a barrel, the marginal cost of extracting oil was $92 in 2011, up 11% from the year before . This suggests that oil will continue to double in price every six or seven years as it has over the last fifteen years. If this new abundance of oil teased by Stansberry & Assoc. provides a new downward pressure on prices, all the world oil people have to do is disrupt some other supply somewhere. Production from countries like Saudi, Iran, or Iraq dwarf those of the US in terms of ability to meet demand. Costs of doing business in the US are going up as people ask producers to pay for the environmental costs for production. Middle Eastern countries for the most part produce oil at $2-6 per bbl. Shell bid $1.35/bbl. to increase oil production from the Majnoon Oil Field. Shell will probably receive $1B per year in eight years from that contract. Stansberry likes to be make bold, visible statements, not predictions that actually beat the market.
Funny thing Warren Buffet is buying this stock, weeks ahead of Stansberry’s report.