Energy Sector: An Overview

January 29, 2009

Global energy demand, supply, estimates or anything related have gone topsy-turvy in the last year. No one could have really guessed the volatility in the energy markets, in such a short span of time. Just 12 months back we were discussing on alternatives to oil. The likes of solar energy and wind powered energy were seen as the most prominent alternatives, but required heavy capital expenditures.

Oil billionaire T. Boon...

Image by Getty Images via Daylife

T. Boone Pickens came into the limelight with his so called the ‘Pickens Plan’, standing up to take responsibility by presenting to Congress the benefits of wind power. Now, all this relied heavily on one assumption: that oil price would remain elevated to exorbitant level (peak seen at $147, mid-summer of 2008). Well, we all know what has happened since then. The same companies who were enjoying fat margins ann oil rich nations who found it hard to put a lid on their petro-dollar reserves, are the very same people who are now struggling with not just liquidity issues, but also their very existence (remember VeraSun bankruptcy).

Trying to avoid a total collapse in the Energy market, the watchdog OPEC stepped into the picture by announcing massive production cutbacks in November and December (OPEC cutbacks do not include cutbacks by the Saudis and Russia). Mr. Market expected these cutbacks to help stabilise the demand and supply imbalance that had been created in previous years. However, oil prices continued to plummet and fell nearly to a fifth of it’s peak value by December.

The last twelve months have been, none-the-less very interesting. These markets have encouraged me to start blogging on uderstanding markets and industries, in lay man terms. GICS is a premier source which is used by research houses, including buy-side and sell-side analysts. GICS classifies the Energy sector into Energy Equipment & Services and Oil, Gas & Consumable Fuels industries. Their Sub-Industry groupings go much deeper, which is shown below:

GICS Classification

Look out for the Sub-Industries mentioned above in upcoming posts.

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Blog Plan

January 24, 2009

It’s been a long time coming for this blog. I have had a lot to wrestle with with regards to plans for this blog. Initially, I wanted to take it down the investment management route, by analyzing companies which exhibit strong values. This (old) plan was intended with the motive to compliment the CFA exam (which I was planning to complete). However, life has gotten a little too busy and I have had to drop those plans.

As things stand right now, I plan to introduce, not only to myself but also my readers the significance of understanding industry analysis. In this regard, the best place to start would be using the GICS (Global Industry Classification Standard) classification of industries and sectors. GICS classification is really great. Even when I didn’t understand any sector, it was easy enough for me to get a general idea about the respective sector just by glancing at the GICS classification map. I hope my journey through understanding industries, and beyond that whatever the future holds, is fruitful for all of us.