Though best inown for his expertise in assessing small cap growth stocks, Jm Oberweis Jr. is also a top-notch analyst and money manager with keen insights on macroeconomic events.
Here, the editor of The Oberweis Report takes a look at the fundamentals and psychology underlying the oil markets, offering a look at the likely long-term outlook for oil and select oil service stocks.
"Look no further than the crude oil market for a case study in price volatility and rapidly changing investor sentiment. One month ago, in the face of $147 crude oil, the bulls were stampeding and brazenly promoting price targets of $200, $250, or more.
"Politicians were assailing the dreaded 'speculator,' likely because it’s easier to blame a fictional villain than look in the mirror and accept responsibility for contributing to an inept (or arguably non-existent) national energy policy.
"Yet that was then, and this is now. Now, after a rapid 16% decline from the peak on July 11, the oil bulls have vanished into the FBI’s witness protection program.
"The bears are on the prowl, talking about 'demand destruction' resulting from a weakening global economy, fewer miles driven by American motorists, and a rumored armada of oil tankers steaming to our shores from Saudi Arabia to save the day. The oil bubble has burst.
"Was it a bubble? When investor sentiment swings like a pendulum as quickly as it does in this environment, we find it helpful to check our emotions, look at the facts and dust off the old economics textbook and revisit the concept of 'supply and demand.'
"The facts suggest that we are addicted to oil and that the rest of the world is becoming addicted too. Growth in demand for crude oil has accelerated in each of the last three decades.
"Between 1980 and 1990, according to the Energy Information Administration (EIA), worldwide daily demand grew 5.7%. Demand growth accelerated to 15.0% between 1990 and 2000, and should accelerate again in this decade, with growth of 10% already from 2000 through 2006.
"OPEC estimates that the world will demand 113 million barrels of oil per day in 2030, up more than 33% from 2006.
"The driver behind this accelerating demand growth is the industrialization of emerging economies like China, India, Brazil, and other Far East countries.
"Using the U.S. as the benchmark for the industrialized world, the data suggest that the potential future demand for oil is so staggering that the odds of supply keeping pace seem almost insurmountable. Consider this: the U.S.
