- A new jihadi group looms here
- One way a share can rocket up
- A troubling sign in China…
- Plus, don’t forget to watch today’s YouTube update, comment and subscribe!
With the current news, we have no choice but to turn our eyes to the coming election.
It could rattle one of the biggest markets in the world.
It could shower money down on the undeserving and the already rich.
There could be lives lost.
I’m not talking about the Australian election this year. That probably counts for nothing in global markets.
No, the one I have in mind is in far-off Africa. Today’s Profit Watch explains why you should care…
I’m talking about Nigeria. The country is going to the polls on 16 February.
Neither of us will envy the man who gets the top job for the next term. He’ll be battling to hold the place together.
The Wall Street Journal reports that a new jihadi group, called the Islamic State West Africa Province (ISWAP), practically rules the northern part of the country.
It’s attacking government buildings and army bases — and has equivalent weapons and more ammunition.
Apparently, ISWAP wants its own country — and is being fed men and money from Islamic State in the Middle East.
The current Nigerian president has few men to spare. His troops are already needed to protect the oil fields in the south of the country.
Any violence or dispute around this election could have global consequences.
Certainly, any major disruption to Nigerian oil supply would ricochet around the world.
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The current turmoil on the other side of the Atlantic, in Venezuela, is putting energy markets in a precarious position…
Oil: Different vintages, like wine
The US has the biggest oil refining industry in the world.
These oil refineries are used to being fed ‘heavy’ crude from two sources especially: Canada and Venezuela.
Suddenly, the once abundant supply of these is becoming scarcer.
This could restrict the ability of US refiners to get supply of refined products to market.
We’ll see on that. Here’s why I bring it up.
The Wall Street Journal says major US refiner Valero is looking to ‘maximise its intake of lighter, less sulphurous crude’.
Different crudes from different countries have different qualities. They’re as diverse as wines can be.
One of the best for light and low-sulphur crude is…hey, you probably already guessed…Nigeria.
Already, Nigerian production is fairly stagnant. That’s built into today’s oil price.
However, should anything threaten this existing supply — like an armed and funded jihadi group, for example — it could send the market into a panic.
That’s why the Nigerian election looms larger over the world economy right now.
Now, we have no way of knowing how likely an oil disruption is in Nigeria.
All I can tell you is that with Venezuela down and Iran under heavy sanctions, the ingredients are in place for the oil market to tighten should a third wildcard come into play.
It’s why I keep a list of ASX-listed oil juniors on my watchlist…
How you can cash in on small caps
One of those happens to be called Otto Energy Limited [ASX:OEL].
It had a big lift yesterday. It released very good news around an exploration well in Texas. At one point, it was up 70%.
That’s the kind of gain you can make — in a day — in a small-cap stock, like an oil explorer, when it finds what it’s looking for.
And Otto’s not done for the year. It has some other drilling campaigns coming up. Keep an eye on this one (but please don’t rush out and buy it based off this comment alone).
I merely use it to illustrate a broader point.
Here’s a couple of things I like about energy stocks currently.
There’s little investor interest for the moment. Prices are generally not high. That helps protect the downside.
A distinct possibility exists for crude oil to run higher based off market disruptions and stresses. It may not happen, but it’s well within the bounds of reason.
Plus, you can position for possible drilling success, as in the case of Otto recently. That gives you two possible catalysts for the stocks to move higher.
Of course, no investments or speculations are without risk. Perhaps a crude oil spike never happens. Perhaps it tanks completely. A drilling campaign might be unsuccessful.
But we can only operate in the realm of possibilities and probabilities. Energy stocks remain of high interest to me.
One caveat must come in…
Chinese grads: Not happy, Jan
China is a possible threat. The economy there is weak. China is a big energy user. I remember interviewing a China analyst called Shaun Rein some years ago.
He told me one sign for economic strength or weakness he looked for in China was employment figures for university graduates.
They were strong at the time — despite the bearish headlines about China back then.
The Financial Times reported yesterday that a record number of graduates are adding to the ‘large employment pressure’.
That’s a sign of weakness.
And yet crude oil is lifting off the low it made last year. Hmm.
It’s not clear whether the health of the economy is the deciding factor anyway. Oil’s heyday was in the 1970s — a time of general economic malaise.
It all gets back to demand versus supply. We can only assess day by day.
Here’s one thing I do know…
Expectations for growth this year are modest.
However, should demand surprise everyone to the upside this year, we could be in for a rollicking ride in energy stocks.