- Published on Wednesday, 25 January 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 1848
The energy markets are manipulated. Any time the system is this far out of line, bad things will happen.
There are big changes ahead for the global energy markets. And when I say big... I mean BIG. Something happened yesterday that will kick off an avalanche of change.
England's largest gasoline supplier went bust. Belly-up.
With one flick of a switch, the continent's largest independent refiner cut its flow to the market. The focus is on Petroplus' Coryton plant -- it supplies about 10% of the United Kingdom's fuel and is the key source of gasoline in London.
As the refinery's Swiss owner prepares for bankruptcy, the market is scrambling for a replacement.
"There may be severe problems of supply across the whole of London and the southeast to petrol [gas stations]," said British politician Richard Howitt, "with a refinery stopping deliveries which supplies one sixth of the market."
The big problem here is not Petroplus' bankruptcy. Its failure is merely a symptom of the disease.
The real issue is the frightening pace our manipulated energy market is melting down.
Let me explain... The crude market is anything but free. It is run by a government-led oil cartel that controls daily production limits. If prices get too high or too low... the cartel fixes it.
The problem is supply and demand don't dictate why prices move. These days, oil prices are slave to political risk. If Egypt erupts... prices rise. If Sudan cuts a pipeline... prices rise. If Iran curls its bicep... prices rise.
But fortunately, dear reader, you and I operate in a free market. When prices rise, we cut back. And when alternatives are available, we take them.
This chart shows what's wrong with the crude market. Demand is down... but prices are up.
Over the past six years, crude demand has plunged. We are back to where we were over a decade ago... and yet prices remain very close to their peak-demand levels.
Something is broke.
Again, it is a function of a market dominated by politics versus reality. Right now, crude prices should be dramatically lower. Just ask the newly unemployed folks at Petroplus.
The refiner was forced to buy crude (with its political premium) inside a manipulated market. But it was forced to sell its final product on the open market.
On one end of the spectrum ... it's bullish.
On the other ... the bears rule.
For the refiners in the middle... it's hell. When they are forced to buy overpriced raw goods and sell the finished product in a recessionary market, the margins are near zero. Petroplus is bankrupt because it cannot survive in an industry where demand is falling and input prices are rising.
Sadly, there is plenty of evidence this is just the way our political leaders want it. If their grand energy schemes won't work in a free market, they'll rig the market in their favor.
Solyndra comes to mind...
So does the Keystone pipeline...
And "Cash for Clunkers"...
What I like best out of all of this is the idea that natural gas has been virtually shunned by our national leaders. Like a bastard child, they know it's there... but they'd rather not talk about it.
Fine by me... The less they talk, the larger our opportunity. In the January issue of my newsletter, I told readers of the No. 1 company to take advantage of the recent onslaught of gas supplies.
In the five or six weeks since we published the advice... shares have risen by 26%.
When we host our annual natural resources summit in Toronto in April, I will give a full presentation on the subject and the best ways to play it. But what's better is we'll have representatives from several oil and gas firms there... to give you the inside scoop.
If you haven't applied for your invitation, here's a link.
Bottom line... the energy industry is changing far faster than most investors imagined. The crude market is faltering and risk is higher than ever.
In times like these it pays to take a different strategy.
Editor's Note: In the next issue of my newsletter, Unconventional Wealth, I will pull the curtain on an index tracked by some of the top pension funds, yet the vast majority of investors have no idea it exists. Even better... I will show readers how to take advantage of this market-smashing index. Here's a link to the details.
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