Oil prices have been up and down all week. Are they finally recovering, and if so, will it last? Industry Focus explains what it all means and why it doesn't actually matter whether or not the current upswing marks the beginning of a definitive recovery.

Next, our analysts discuss the ongoing controversy over the Keystone XL pipeline, including some problematic assumptions being made on both sides of the debate. Finally, Brazilian energy corporation Petrobras (NYSE:PBR) looks fairly attractive on paper, but there's a lot you need to know before taking the plunge.

A full transcript follows the video.

Mark Reeth: $58 a barrel? Don't call it a comeback! Here, on Industry Focus.


Hey everybody, I'm Mark Reeth here with Nathan Wallingsford, Tyler Crowe, and apparently I missed the memo about sweaters and collared shirts. I'm sorry about that. You guys look so dapper today.

Tyler Crowe: Would you read your emails in the morning? My God!

Reeth: We matched each other last week! I'm really sorry about that, guys. It's totally my bad. $58 a barrel??

Crowe: All of Wall Street, they took the champagne...

Reeth: Woo!

Crowe: They went out on the street, started popping. It's a celebration.

Reeth: Here we go! Is this the end of the dip? Are we coming back? Is this it?

Nate Wallingsford: First, let's take a look at what's behind this short-term price movement. You have prices down over 50% since last June. If you've been watching oil prices within the last couple of days, you probably have some whiplash right now! It's a little bit of ebb and flow, up and down. What's really driving it?

You have, over the last three days, oil prices up 20%, but then again you have energy stocks that are going along with that, just on that single price movement, so you get this stop-and-go traffic.

But really if you look at the short term, we have Big Oil who reported last week a lot of capital spending cuts that are going on, so investors are feeling good about that in terms of shoring up some of this oil supply that's out there right now.

You also have traders who are perhaps covering their short positions, thinking that if oil prices were to decline even more so now, having to buy back some of that stock so they can cut some of their losses there.

But if you look at the long-term fundamentals, you still have that surplus of oil on the market right now; 1.5 million to 2 million barrels of oil per day that are still out there right now. It's going to take some time for that to level off and for oil prices to stabilize, I think.

You also have the U.S. refining strike that's just kicking off, the largest one since 1980 right now, so a lot of concerns over that too, what's going to play out.

I think this is more of a short-term hiccup than a little glimpse into what may be to come further.

Crowe: There is certainly nothing more fun than watching financial media and analysts make these calls about three weeks ago about how they were putting down future positions at $30, $20 a barrel, on how it could go even further and they don't know where the bottom is ... and then yesterday they all came out like, "Yes, $60 sounds about right."

Reeth: Easy!

Crowe: Then everything goes right back up and everybody starts showing all these technical charts of the price of oil, with things like the "Christmas tree of death," or some other crap like that.

Reeth: Hey. Hey. The Christmas tree of death is a real thing. How dare you!

Crowe: I watch some of these media shows and I swear they are just sacrificing a chicken on a desk, and then figuring out where oil prices are going to go from there.

The short-term reality is, it doesn't matter. Yes, capital expenditures are getting cut, but there is a surplus. It's going to take a while. It's not going to jump 7-10% like it did in a single day yesterday. Investors need to be patient, and don't be surprised if it drops another 7% in the next couple of days, because that's just what happens.

Reeth: Madness. Oil, who needs it?

Crowe: Just everybody.

Reeth: Everyone needs oil, and everyone is talking about Keystone pipeline, the pipeline that's going to bring a whole bunch of oil to the United States. Or is it, Tyler?

Crowe: Oh, my favorite subject!

Reeth: We've got assessments. Politics and finance; what gets better than that?

Crowe: Aside from watching financial media, one of the great joys of doing this job for the last couple years has been throwing tomatoes at every single assumption or declarative statement that people have made about TransCanada's Keystone XL pipeline.

Yesterday, the EPA came out with a letter confirming their stance on why it shouldn't be built, looking at the State Department's issue on climate change; how much carbon emissions the Keystone XL is going to produce.

Basically what they said is it could be the equivalent of about seven coal plants per year of carbon production.

Reeth: Ouch.

Crowe: Which, you can say, is a scientific fact. That's fine; I'm completely OK with you saying that. However, you have to tell us the assumptions that you make to get to that number. That's when those numbers start to look really funny.

When I read through the whole thing on prices, carbon, all that stuff, there are three major assumptions that I look at it and go, "Really? This is how you want to do it?"

The first one, on this carbon thing. They basically said that 7.5 coal plant equivalent of carbon emissions is taking the worst case scenario of oil sands production in Canada, basically saying the most pollutive version of that -- the company that just doesn't give a care in the world about how much carbon they're polluting -- and they're going to be the only supplier for the Keystone XL.

Whereas the comparative crude, the one that it's supposed to replace, that Keystone XL, is going to be oil from Venezuela from the most ecologically conscious company out there in Venezuela.

If you believe that the most pollutive company in Canada and the most ecologically responsible company in Venezuela are going to be the one that you actually have to make a comparison about, then yes that is a scientific fact, that's what you're going to get.

Reeth: Yes, makes sense. Go with the extremes.

Crowe: That is the extreme that we're dealing with. To even bring that into a broader term, this is about 800,000 barrels per day of oil. The United States processes about 16 million barrels a day of oil. When you throw all of that in together, on that maximum assumption, it would change the carbon intensity of the oil industry by 0.44%

Reeth: My God!

Crowe: My God! There are even some instances where it's 0.001%, if you were to use the cleaner version of Canada and the more polluted version of Venezuela. So you've got that assumption. That is the biggest one that I look at and go, "Come on."

The second one; basically what they say is that America is the center of the universe, and if America doesn't use this oil, nobody else will.

Reeth: Makes sense.

Crowe: What they say is if Keystone isn't built, all of the other un-economical means of getting it here, by rail or anything like that, will make the market constrained and there won't be production of oil sands, therefore saving the world less carbon production.

Reeth: Sure!

Crowe: Really? Really? This stuff isn't going to make it to China? This stuff isn't going to make it to India? It just really doesn't make a whole lot of sense.

Reeth: It's America or nothing, Tyler.

Crowe: You've got those two things, which really kind of look funny. Then there's the last one, where it says "Oil is cheap, we don't need it anymore." They're going on the assumption that, yes, oil is $50 now.

Reeth: It's $58.

Crowe: $58, sorry.

Reeth: Come on!

Crowe: We had a big rally yesterday.

Reeth: It was huge!

Crowe: We're looking at that and saying, "Okay. That means that they're saying that it's going to be $50 in perpetuity, for ever and ever and ever, and we will never need the Keystone XL pipeline."

Reeth: Makes sense.

Crowe: Again, really?

We've had so many of these broad assumptions on why it should be done, on one side; on climate change and all these other things we just talked about. Then on the other side you have the advocates for jobs and stuff like that, and their assumptions are absolutely ridiculous too.

If you want to really understand this whole thing, you actually have to go in and look at the assumptions these people are making, because some of them are the most ridiculous things that we've ever heard.

Reeth: All that being said, what's the future of the Keystone pipeline? I've got to imagine someone in the President's cabinet is looking at this the same way you are and saying, "Mr. President, come on. Come on!"

Crowe: There's that, and then there's also the, "We can score some political points." That's pretty much what I think it's all going to come down to. It's been like this for years. It's been, "Who can win this?" because it's a political point.

We already have a ton of Canadian crude already coming down here through pipeline, through rail. I don't think it really matters.

Reeth: Okay, well I'm glad we spent five minutes talking about that, then! It doesn't really matter! No, no, no, it does matter. That's fascinating. It's going to be fun to watch what happens there.

Last but not least, Petrobras is in the news today for all the wrong reasons. Tyler came over to me today and told me that the Petrobras CEO and several high-level executives there "resigned." He used the quotation marks. I asked him not to tell me why he used the quotation marks. Nathan, what's going on at Petrobras?

Wallingsford: There's been a scandal that's been in the news for a pretty long time now. The Petrobras CEO, who just "resigned," and a couple other executives at the high-level management basically resigned because the scandal included kickbacks that they were getting from suppliers to Petrobras.

These basically suppliers went in, bribed these executives and said, "We'll give you drilling supplies and other things, just to have the business and get the proceeds off of that." What was happening was, these suppliers allegedly were sending kickbacks to the now "resigned" officials.

Reeth: You're very good at this, by the way.

Wallingsford: Yes, I practiced the air quotes before I came in here!

That's what's going on, but another element to it is Brazil's President, Dilma Rousseff, served as Chairman of Petrobras during the time that they're investigating, from 2003 to 2010.

Reeth: Uh-oh.

Wallingsford: Right, so there's a little bit more spice to the story than just a couple executives that are resigning right now.

But really, when you look at the next CEO that they're going to tag for this, something that the President had said was, "We want to find someone who has the industry experience, and not someone who's necessarily tied to the political realm within Brazil."

But it's been rumored that the frontrunner was actually the former President of the Central Bank of Brazil.

Reeth: Good.

Wallingsford: Henrique Meirelles, I believe is his name.

Reeth: Absolutely no political ties. None whatsoever. None whatsoever.

Wallingsford: That's totally a perfect fit, you know?

Reeth: I don't pretend to be an expert on Petrobras, but my understanding is it's a state-sponsored oil company. It's intrinsically tied to politics.

As an investor, is that going to scare me away? It seems like when the President of a country is also going to be the President of the oil company, is also going to be the biggest banker in the country ... should I be a little afraid of something like that?

Crowe: It is very, very tempting to look at Petrobras as a stock. I will even admit, when I first started looking at it a while ago I said, "Yes, this looks really interesting. They're going to have a ton of oil production growth because of those massive oil fields that they have. It's got a built-in supply base with the entire country of Brazil going on."

But there are just so many whacky things because it straddles the line between a state-owned oil company that is about energy security, versus the private company that wants to make returns for shareholders. It has to balance that out.

Actually, I'm a little slightly sad to see the CEO, Maria das Graças Silva Foster, leave. Despite all this political kickback, stuff like that, in her tenure they had gone through this massive cost-cutting program and actually made it look like it was going to be a profitable company.

They slashed several billion dollars off of their operating budgets and it was starting to really turn the corner, and then all of a sudden this scandal really started to hit hard, and then you went, "Ah, shucks."

But when you look at it, you've got that obscure thing of, what direction are they going to go in? Are they looking at it to make sure that everybody in Brazil has cheap gasoline to prevent inflation from going too high, or are you actually looking at it from the perspective of a company that is supposed to make a return for you?

There are just so many difficult things you've got going on with that one. You've got $100 billion of debt, denominated in U.S. dollars, when they make all their revenue in Brazilian reals, so you've got foreign exchange exposure, you've got all this subsidized gasoline so they have to take perpetual losses on a certain segment of the business ...

Reeth: Not complex at all.

Crowe: It looks tempting. You look at it and go, "My God, it's got a price to earnings valuation of 5 right now." That's like a dead company, and with all this potential, but there are so many screwy, whacky things that go on with this company, it seems toxic.

Reeth: It seems toxic. That's very well-put. That's about it for our time here, but before we go let's make a wildly unjustifiable prediction. What is the price of oil, a week from today? How about that, next Wednesday when we get together again, what have you got?

Wallingsford: At least $200.

Reeth: Easy, obviously. It's that Christmas tree of death.

Crowe: I'll go with $0.05. We're just going to go ridiculous.

Reeth: Dramatically different points of view here. I like it! We're going to find out.

Crowe: Somewhere in the middle, there's going to be a price that works.

Reeth: There you go, and that's what matters!

Nate Wallingsford, Tyler Crowe, guys, thanks for being here. I'm Mark Reeth. Thanks for tuning in, and we'll see you next time.