Profit from Oil's Next Surge
by
Sean Brodrick
 I
have bad news: If you think oil prices are high now, you ain't seen
nothin' yet. The good news is that you can profit from oil's next move.
That should help you pay your soaring bills when gasoline accelerates
past $4 a gallon. More on that in a moment. First, let's talk about why
energy prices are on the move.
About a
month ago, I gave you
"Three Triggers for Higher Oil Prices." Just to refresh your memory,
they are: 1. the potential for monster hurricanes in the Gulf of Mexico,
2. spreading violence in the Persian Gulf, and 3. a potential al Qaeda
attack on U.S. oil facilities.
Since
then, oil prices catapulted from $66.26 to as high as $75 a barrel
yesterday. And guess what? None of those three things I warned you about
have even happened yet!
Mind you,
I think these scenarios are only getting more likely. For example, we
haven't seen any hurricanes in July, but we usually don't. Historically
speaking, August, September and October are the busiest months for
tropical storms.
You're
probably wondering why oil prices have been rising even without these
catalysts. The reason is simple: The supply/demand picture for oil is
tight and getting tighter.
In fact,
I'm here to tell you that even if NONE of those big three things happen,
we could still see $90-per-barrel oil this year! And if one or more of
those dire events I warned of actually happens, prices could spike even
higher.
Let me
explain …
Oil Prices Are Riding the
Wave of Global Expansion
Why is
oil going higher? Simple — the global economy is growing, business from
Brazil to Singapore is booming, the world's population is trading in
bicycles for cars, and global oil demand can't keep up.
Some
critical facts …
- The
global economy is growing at about 4.5% per year.
- As a
result, The International Energy Agency (IEA) projects in its
Medium Term Oil Market Report that global oil demand will grow
2.2% a year, on average. By 2012, it should reach 95.8 million barrels
per day (bpd) vs. 86 million bpd this year.
- At the
same time, spare capacity — almost all of which is in Saudi Arabia —
is going to approach the vanishing point.
- Even
worse, the IEA expects supply increases from non-OPEC oil producers
and biofuel producers to start dwindling even earlier — around 2009.
All that
boils down to an ugly picture from the IEA …
As you
can see, even with moderate GDP growth, the world's oil demand growth is
going to start outpacing supply growth by 2010!
And even
if the global economy slows down, global oil demand growth will start
outpacing supply in 2011!
In other
words, the "Big Squeeze" will start within four years … regardless of
what economic scenario you believe in.
Plus, the
IEA has more gloomy news for us:
- We're
getting between 3% and 4% LESS out of existing oilfields every year.
- Mature
producing areas and many recent deepwater projects are declining at
even sharper rates — 15% to 20% annually!
- All
told, the oil industry needs to add three million bpd of new
supply each year just to offset declines in existing
fields.
Yet the
oil majors are having trouble finding oil. For example, last year was
the first time — EVER — that Exxon didn't replace its reserves through
its own drilling, according to Oppenheimer research.
The
situation is complicated by another fact: More and more of the world's
oil reserves are under the thumbs of national oil companies, such as
Saudi Arabia's Aramco, Mexico's Pemex, and Venezuela's PDVSA. These
companies aren't as efficient as Western majors at finding oil, and the
countries that have the remaining large oil deposits often scare off or
even forbid outside investment.
Sounds
bad, right? It is. However …
The IEA Is Probably Being Too
Optimistic About Global Oil Supplies!
If
anything, the Big Squeeze might come sooner than the International
Energy Agency's 2010-2011 forecast. Here's why …
The IEA
is expecting OPEC to ramp up production by about 600,000 bpd next year
to 32 million bpd.
But
OPEC's latest report reveals that the cartel's production is actually
FALLING — down to 30.06 million barrels a day in June. That's a drop of
96,600 bpd from May.
What's
more, according to the IEA's own chief economist, Fatih Birol,
"If
Iraqi production does not rise exponentially by 2015, we have a very
big problem, even if Saudi Arabia fulfills all its promises. The
numbers are very simple, there's no need to be an expert."
Well, the
latest OPEC report shows that Iraq's production is falling the fastest
of any of the cartel members — a drop of 78,000 barrels per day in June.
You know
what the situation in Iraq is like. Civil war … chaos … madness! Do you
think Iraq will experience "exponential" growth in its oil production
anytime soon? No way!
And Iraq
isn't the only OPEC member with declining production. In June, Kuwait
and Venezuela saw declines of 38,300 and 34,000 bpd, respectively. Saudi
Arabian production also fell — by 33,300 bpd. The Saudis say they can
turn the spigots back on. Let's hope that's true.
Meanwhile, oil production is declining in some non-OPEC countries, too.
I'm talking about places like the U.K., Norway, and Mexico.
Goldman
Sachs Group Inc. said in a report on Monday that Saudi Arabia, the
United Arab Emirates, and Kuwait must increase production by
the end of this summer. According to the Wall Street firm, this
production increase is "critical" to avoid
prices surging above $90 a barrel in the fourth
quarter of this year.
Here's How You Can Prepare
For Even Higher Oil and Gas Prices
First, you can buy a fuel-efficient car. To see the
EPA's list of the most fuel efficient cars,
click here.
Second, talk to your boss about telecommuting two or
three days per week. You'll save time and money. And you'll help America
kick its addiction to foreign oil in the process. While it's unlikely
that we can totally eliminate our dependence on Middle Eastern oil, the
less we use of it, the less of a stranglehold the Saudis have over us.
Third, invest in underloved oil and gas stocks that
are going to ride the wave of higher prices. I just recommended two
issues to my Red-Hot Resources subscribers on Monday — stocks
that trade at eight and nine times earnings. For some reason, Wall
Street just can't see these gems waiting to be scooped up — even with
oil prices poised to go sky-high!
Of
course, if you don't like the potential volatility of individual stocks,
you can also consider a good ETF like the Energy Select SPDR (XLE).
One
caution: 33% of the XLE is in two stocks, ExxonMobil and Chevron. For
that reason, you might also want to check out a mutual fund like
U.S. Global Investors Global Resources Fund (PSPFX). This
no-load fund's holdings are more spread out through the energy complex,
with top holdings Schlumberger, Noble Corp., and White Nile each taking
up less than 3% of the total portfolio.
I
mentioned both of these funds back in that June column on energy. Since
then, they've done pretty well: The XLE is up over 4% since then, and
PSPFX is up about 9%!
Remember,
if you're buying stocks or funds on your own, do your homework first.
Only you can decide what's right for your own portfolio. But whatever
you do, get ready for a wild ride in energy prices this summer!
Yours for
trading profits,
Sean
P.S. It's
not too late to get in on my latest energy picks in Red-Hot
Resources, either. Just call 1-800-430-3683 and tell 'em Sean sent
ya. We'll jump-start your portfolio with my latest oil picks, along with
two core uranium positions that look poised for blast-off. You can also
subscribe by
clicking here. |
