BY SHANA ORCZYK, INVESTMENT ANALYST
The price of crude oil has been a topic of great interest for investors recently. Oil prices have seemed to directly affect the broad U.S. markets, resulting in a seemingly negative correlation between the two. Since hitting its July 11th high of $145.08 a barrel, oil has experienced a precipitous decline and today maintains levels below $120/bbl.

 While the drop in crude oil prices has helped our wallets when filling our gas tanks, it has resulted in volatility in some of the mutual funds we use in the Peak Portfolios. Many of our best fund managers have been heavily invested in stocks related to energy, and as a firm our group continues to believe in the long-term growth prospects for the sector. So the question remains, is the recent downturn in the energy sector a bull market correction, or the end of the road for energy investors. While there is no easy way to determine the future for the energy sector without the use of a crystal ball, the evidence indicates the long-term story remains intact and despite the recent sell-off energy remains an area of opportunity going forward.

Since 2002 the energy sector has experienced 15 corrections of 12% or more, with each correction providing attractive entry points into the sector. Many investors may assume that the energy companies experienced their stellar results due entirely to the high price of oil, but in reality that is simply not true. As of June 30, 2008 energy stocks were discounting oil to $80/bbl. Today those same stocks are discounting oil to $65/bbl as a result of the recent market correction. Demand destruction in the U.S. has resulted in 700,000/bbl reduction in our demand in the world oil markets. While that is a substantial decline, even with that adjustment global oil demand continues to grow by 1,000,000/bbl per day.

The majority of the new demand is coming from the emerging economies, which include all of the Six Sizzling Markets (China, India, Russia, Brazil, South Korea, and Mexico). While the United States pulls back on its demand for oil, consumption continues to grow in Europe, Latin America, the Middle East, China, and India. Recently we've seen oil exports to China decline by 22%, while some of this can be attributed to the lift in the subsidies by the Chinese Government, it is largely a result of the inventory drawdown preceding the Olympic Games. As we are all aware, leading up to the 2008 Beijing Games, the air quality in China became a major concern for the world's athletes. In an effort to address these concerns the Chinese government ordered more than 1 million cars off the road and shut down all factories surrounding Beijing for the duration of the games. However, once the Olympic Games conclude it will be business as usual and the Chinese demand should return to normal levels.

Its not just oil either, coal demand continues to grow leaps and bounds. As countries begin to grow and develop greater wealth, the domestic demand for power grows. The most common fuel for power plants is coal. The United States is the world's largest exporter of coal, however hyper demand and infrastructure constraints have resulted in coal shortages in China, Chile, Brazil, Argentina, and South Africa. When power plants experience coal shortages the quickest and easiest substitute is burning crude oil. Today worldwide growth in electricity demand is about 125,000 megawatts a year, the equivalent to 300 million tons of coal or 300,000 barrels of crude oil. While alternative energy sources are being explored they are far more expensive and simply cannot meet the growth in demand. The chart below shows the amount of megawatts produced annually with the world's current alternative resource capabilities.

In our opinion the long-term outlook remains bullish for energy stocks. We believe the recent sell-off in the sector provides an attractive entry point for new investors. In closing I will leave you with a statistic that was referenced in a recent conference call with Dan Rice, the Portfolio Manager of Blackrock Global All Cap Natural Resources. The growth in demand for oil remains so strong globally that if the entire fleet of cars in the United States were converted to the Toyota Prius the shift in demand from the U.S. would be completely offset in 2 years by the growth in demand in China alone.