Wednesday, September 10, 2008

Are Oil Stocks Still a Good Investment?

There's a lot going on in the energy space. Will we drill offshore? Will we embrace Natural Gas as an alternative to gasoline for powering vehicles? Will alternative energy tax credits get extended to promote wind and solar? How low will Crude Oil prices drop? And will it ever bring down gas prices?


Well, to begin with, we got some news from OPEC today. They chose to cut their output. Bottom line is the like oil prices better at $120 or $140/barrel than at $103 or potentially lower. This seems all too strange. Wasn't President Bush recently going to Saudi Arabia to beg them to increase production? The bottom line here is you can say all you want about demand destruction, but for the mean time, these guys are still pulling the strings, and they like oil prices high.

Word is coming from Washington that the Democrats are now open to "limited" offshore oil drilling. But it will have to come in the form of a compromise, which would include Alt-Energy tax credits being renewed. I think both need to be approved here. We need change, and need it ASAP. Bottom line here is that alternative energies are great, and we need to encourage them to be developed, but we need a bridge because they aren't ready to supply it all yet. That bridge is more domestic oil and using natural gas for more uses.

It is unfortunate that there has been a disconnect with falling oil prices and gasoline prices. When oil went from $100 to $140, we all know what happened to gas prices. Now, when oil goes from $140 to $104, I think gas prices went from $4.10 to $3.80.

So, what do we need to know as investors? Well, I think there are some oil stocks to take a look at. I'm looking at XTO Energy (XTO) and National Oilwell Varco (NOV).

XTO has a strong presence in Natural Gas, and if Washington jumps on board with this fuel, this stock will do well.

National Oilwell Varco has an amazing business of supplying services and part to oil wells. If we approve more offshore drilling, it doesn't take a genius to figure out this one.

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