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Is the Sell-Off in Oil Overdone?

Oil continues to be the fuel of necessity for Americans. Over the last year, overseas tensions drove the price of oil higher and had many people worried. Lately, the price of oil has plummeted on economic growth concerns.

Despite the volatility the fundamental questions regarding oil remain the same.

What will happen if the flow of oil from overseas dries up? Do we have enough domestic reserves to replace a large-scale supply disruption?

Those who can remember the 1970s know what happens when oil supplies drop. First there was an oil embargo in 1973 which led to fuel shortages, lines stretching for blocks at the gas pumps and a move away from gas-guzzling vehicles. Gas prices jumped to an unheard-of at that time $1 a gallon.

Then another crisis arose in 1979, when the Shaw of Iran was overthrown, curtailing the flow of oil from Iraq.

Sound a little like something that's happening lately?

We've seen what the rebellion in Libya can do to the world's oil prices. While that North African nation only supplies about 2 percent of the daily global crude oil production, tension in the area sent oil prices up 25 percent in a matter of weeks to over $100 a barrel.

Of course, the fear isn't that disruption out of a single country such as Libya will lead to huge problems. Rather a rational assumption for many people is that revolutions that have been occurring for years across the Arab world are going to explode, country by country, and lead to large-scale political and oil supply disruption.

Yet the Americas are not without petroleum deposits. We can look north to Alaska's Prudhoe Bay, to the wealth coming from Texas and the Gulf Coast, and farther south to Venezuela, Mexico and Brazil.

In reality, the EIA data shows that Canada is the leading supplier of U.S. petroleum imports, even outdistancing Saudi Arabia. As you can see from this EIA chart, three of the top five petroleum sources for the U.S. are in the Americas.

Throughout North America, there are plentiful deposits of untapped oil that until recently have been too difficult, or just too expensive, to extract.

With the price of oil much lower than forecasted at this time of year, many oil stocks are selling at incredibly attractive valuations. In particular, American land-based drillers are looking great.

Tomorrow, I'll discuss one of my favorites. I'm out of room today.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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