Go Where the Oil Flows

02/14/2008 12:00 am EST

Focus: COMMODITIES

Curtis Hesler

Editor, Professional Timing Service

Curtis Hesler, editor of Professional Timing Service, says this is a good time to buy energy, particularly shares of companies that serve big oil companies—and big tyrants.

I have been advising that crude would stay soft into February when its next seasonal low is due. So far, it is following the script. I had been looking for prices to go back to $80.00 to $85.00. Crude hit $85.42 on January 22nd.  This is the time to be shopping for energy investments.

We should see the energy sector begin to firm in March and then stay strong into fall. There may be some additional weakness over the next few weeks as energy finally bottoms out, but I look for crude oil to easily exceed $100.00 a barrel on its way to $160.00 as spring wanes and summer progresses. Buy energy now, not when crude blasts over $100.00. Oil currently looks like gold did last July.

I am adding another oil service company to our list this month—Baker Hughes (NYSE: BHI). As crude becomes more scarce, exploration will intensify and oil service will be in even greater demand. 

The old business model was for a large international oil company to come into a country and offer to exploit their oil reserves. The internationals, with all their experience, would explore, drill, and produce the oil. In turn, they would generously share, perhaps, 10% of the proceeds.

The petrocracies that were being shammed in all of this have since realized that they really don’t need the internationals. Big Oil tends to subcontract the service aspects out, anyway. They bring in contract drillers and the likes of Schlumberger (NYSE: SLB) and Baker, so why couldn’t the petrocracies do that and keep all of the revenue? There are arguments as to the efficiency in this approach, with dictators’ cronies and militaries calling the shots. However, even if the new model is inefficient, this approach leaves Mr. Dictator with all the oil revenues.

Bottom line, Schlumberger and Baker Hughes are growing with the price of oil. They are getting paid regardless of whether they work for Big Oil or Big Tyrant, and they provide services [for which] there are no substitutes for.

In today’s world, it would be difficult, if not impossible, to be in the oil business without the products and services of Schlumberger and Baker Hughes. Let the petrocrats fight it out. Both SLB and BHI stand to see their coffers grow handsomely as we approach $160.00 crude oil, and current price weakness is an opportunity. Buy Baker Hughes at $69.00 or better.  (It closed Wednesday above $67—Editor.)

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