Predictions 2011: Stephen Schork On Energy
1. Wall Street will once again call for $100 crude oil and the USO ETF will underperform.
With oil prices now trading comfortably in the mid-$80s, it is hard to rule out $100 crude oil next year. Be that as it may, given the long-standing structure of the forward curve in price, investors in the USOoil ETF will not benefit. To wit, for the four quarters ended September 2010, Nymex West Texas Intermediate crude oil is up by 1.3 percent, but the USO is down around 3.7 percent. As long as the contango exists in the term structure of oil prices, buyers in long-only funds will continue to be disappointed.
2. Natural gas producers will claim they cannot make a living in a sub-$5 market and output will increase anyway.
Natural gas values have trudged along eight-year lows in 2010, yet production in the lower 48 U.S. states has increased in eight of the first nine months of the year. Look for that trend to continue—assuming the EPA does not regulate shale production.
3. Backlash for domestic energy.
Surely nobody would decry abundant domestic sources of cleaner energy? Natural gas shale and corn ethanol creating jobs, fueling domestic investment and heralding a new era of energy independence. A backlash, however, is already brewing—farmers' complaints of water contamination, companies exempt from the clean energy act, hikes in food prices and the $100,000 offered to landowners for drilling rights for companies which stand to make billions.
The shale documentary "Gasland" could do for fracking what "Supersize Me" did for fast food, and even clean-energy godfather Al Gore recently apologized for supporting subsidies for ethanol. Expect discourse to heat up as campaigning begins for 2012.
4. Fools will still be fools with their money—and then complain about it
For the price of admission to the first Super Bowl in 1966, you could purchase 31 gallons of gasoline. For this year’s game, one ticket (face value) will buy you nearly 400 gallons! Absurd indeed. Be that as it may, next year Americans will continue to drink their $5 lattes, buy their $600 iPads and then grumble about the cost of gasoline and “greedy” oil companies.
5. More Venezuelans to move north in 2011.
Despite a sharp rebound in oil prices, the Venezuelan economy shrank by 3.3 percent n 2009 and is down 3.5 percent in the first half of 2010. Inflation is running at 30.5 percent and since Hugo Chavez came to power homicides have reportedly jumped 250 percent to 44 per day. Venezuelan emigration to the United States has almost tripled since the start of the decade to 8,331 a year. Look for that trend to continue in 2011.