Should we Blame Speculators for High Gas Prices?

Many politicians and people are blaming speculators for the High Gas Prices. Should we really blame the Speculators?

In a previous episode of Mad Money, Jim Cramer does not mention speculators as one of the reasons for high gas prices.

In an interesting article by a Senior Writer (Jon Briger) at Fortune magazine, the writer makes a case for not blaming the speculators.

Two of his points:

1. 
   If our representatives did understand the oil markets, they'd know that the true telltale sign of a speculative bubble is not rising trading volumes but rising oil inventories. Speculators would be hoarding oil - building up inventories either in anticipation of higher prices or as part of a scheme to drive prices there. Yet according to the Department of Energy, U.S. oil inventories are now at below-average levels. U.S. oil stocks stand at 309 million barrels, versus 330 million in June 2005.
   

   
   

2. 
   There's something else politicians conveniently overlook: futures trading requires two to tango. For every investor who is betting oil prices will go up, there also needs to be an investor willing to take the opposite side of that bet.
   
   In the past, there have been times when the overwhelming majority of speculators were "longs" betting on higher prices, while their commercial-trader counterparts - i.e. traders working for oil refiners, airlines, and other end-users of oil - were the "shorts" betting prices would fall.
   
   But as New York Mercantile Exchange Chairman James Newsome explained to Stupak's Congressional committee, today's speculators are evenly split between shorts and longs. Moreover, the percentage of futures contracts held by speculators (as opposed to commercial traders) "actually decreased over the last year," Newsome told the subcommittee, "even at the same time that [oil] prices were increasing."
   

   
   

Long Term Trends: Part 5: Consumer Debt

Here are some current trends:

1. Gas and Energy Prices remain expensive and may remain expensive in the future.
2. Food Prices remain high and may remain high in the future.
   
3. Consumer Income may not keep up.
   
4. People can no longer use their houses as ATM machines.
   

With consumers being squeezed, what will the consumer (the U.S. Consumer) do? Will they start saving more or will they continue to spend?

This will depend on many factors, such as culture.

In Japan, there is a greater inclination to save compared to Americans.

However, in the United States, the Savings Rates over the last decade is below 4%, a very low personal savings rate. Even during the recession of 2001, the savings rate remains low.

So Americans (and other cultures) still want to spend despite being squeezed by higher gas, energy, and food prices. This means that in order to continue spending, consumers will need to incur more consumer debt.

Ways to play this

Two obvious plays on increasing consumer debt include:

1. Mastercard (MA)
   
2. Visa (V)

Other plays include:

1. American Express (AXP)
   
2. Portfolio Recovery Associates (PRAA) - Engaged in purchase, collection, and management of portfolios of defaulted consumer receivables.
   

Credit Cards Used to Finance Healthcare Procedures

In the July 2008 edition of Consumer Reports, there is an article that details the increasing use of credit card to finance health care procedures. According to the article, $45 billion is spent today, and it could triple to $150 billion in 2015.

Beware of Rising Charge-Offs

Beware of Rising Charge-Offs. In the first quarter 2008, the Big Three all reported rising charge-offs. For example, the Bank of America charge-off rate increase from 4.73% to 5.19 percent.

Oil in the Arctic and Ice Road Truckers

Gas prices are going through the roof.

One of the reasons for this is the lack of supply.

However, I was reminded recently after watching the Discovery Series "Ice Road Truckers" that there is a lot of untapped oil in the Arctic Region. Some claim that one quarter of the world's untapped oil and gas reserves lie there.

Aside from investing in integrated oil companies such as Exxon-Mobil (XOM) or Conoco-Philips (COP), investing in oil services and oil exploration companies could be profitable.

There are Oil Services and Exploration Companies such as:

1. Schlumberger (SLB)
   
2. Halliburton (HAL)
   
3. Transocean (RIG)
   
4. National Oilwell Varco (NOV)
   
5. Nabors (NBR)
   
6. Ensco International (ESV)
   
7. Petroleo Brasileiro (PBR)

Canada Oil Sands

Canada also has the largest Crude Oil reserve, but much of it is in Oil Sands which may be more expensive to extract. But given today's high energy prices, it is worth it.

Canadian Natural Resources (CNQ) and Suncor (SU) might be good plays on this.

Over the long term, Canada itself, which is rich in natural resources, could be a very good country to invest in. The ishares.com ETF EWC might be a good play to profit from a Canadian boom.

Ice Road Truckers

"Ice Road Truckers" is a History Channel Show (owned by A&E Networks) that features Semi Truckers driving large loads in the Arctic Circle and the Canadian North. During the winter months, the Lakes and Arctic Ocean freezes, allowing truckers to drive above the frozen lake or ocean. The main items they are transporting are either mining equipment or oil equipment. This reminded me that there is a growth area in oil exploration and services in areas such as the Arctic.

Don't Whine About Oil Prices, Profit from It (Or at least Hedge)

In today's CNBC Show "Mad Money", Jim Cramer tells viewers to try to profit from increasing oil prices rather than "freak" out over the price of gasoline.

Jim Cramer pointed out three reasons why oil prices are high:

1. Oil Fields are Drying Up
   
2. It is more difficult to find new oil and get it out of the ground.
   
3. Demand for oil is growing very fast especially in China, India and the rest of the Developing World.

Jim Cramer then used this introduction as a way to introduce some wildcat companies, those companies who are looking for oil.

Hedging For the ETF Investor

Some investors may be mainly ETF investors, and choose not to spend time picking individual stocks.

One way to hedge or profit against rising oil prices is to invest in the ETF with the symbol "USO". USO has a high correlation to the price of oil. USO mainly reflects "the spot price of West Texas Intermediate (WTI) light, sweet crude oil."

For the Stock Picker

For the stock picker, there are many ways to profit from rising oil prices.

We highlighted the different ways and selected companies in Part 1 of the Long Term Trends: Energy, Oil, Coal, Nuclear, and Cleanup.

High Gas Prices Effect on Society; Commentary through Cartoons

We are all feeling the effects of High Gas Prices.

Many cartoonists are commenting about the effect of High Gas Prices on us.

Enjoy the commentary.