The S&P Energy Sector Bullish Percent Index has now moved to its lowest reading in 10 years: Zero. I gather the next stop is a song by Elvis Costello. Though I believe the bullish percent indexes do not, in fact, go below zero.
The selling pressure in energy equities is so relentless and intense, one might conclude the action is forecasting a collapse of global industrialism. And why not. Most other industrial equities are pricing in the same outcome.
As result, a flowing barrel of oil, and the reserves that come with it, can now be purchased on the floor of the NYSE for only a modest premium to the price charged at the NYMEX. (You can also walk between the two exchanges in about 15 minutes). Let’s consider Occidental Petroleum, which produces about 550 thousand barrels a day. OXY has a market cap of 44 billion. Gross oil sales revenues over the next 12 months using oil at 90.00 dollars would come to 18 billion. A share of OXY therefore secures oil for you at a price that puts a premium to NYMEX on the flowing barrel, but, carries a discount on the reserves. I recognize people just want to fill up their tank with gasoline, but, a share of OXY purchased today probably gives you free oil starting about 4 years from now. (Disclosure: I own no OXY at this time. But I have in the past, and I will again in the future).
Question to my readers: how much lower would energy equities have to go, to reflect either a:) oil prices at 50.00, b:) further policy mistakes from Trichet and other European leaders, c:) a metor strike on our blue planet?
-Gregor
