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Don’t Get Comfortable With Cheap Oil |
By Rusty McDougal
March 5, 2009
Though I’m a
“resource guy”, you seldom see me write about oil. It is, in
fact, one of my presently favored
commodities. It’s time for an updated analysis. The best time to
take investment positions is when the masses are looking elsewhere.
This is the very essence of contrarian investing. When the masses are
counting on the market going one way, odds are that it will go the other
way.
Let’s first look at a few well-known oil fundamentals and then at three
lesser known but exceedingly bullish factors.
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Peak oil
concerns are real.
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Large
fields like the Cantarell field in Mexico and those in the North Sea
are in accelerating declines.
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The OPEC
price fixing cartel is cutting production to achieve higher prices.
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You
can’t count on OPEC reserve figures as they are at least as doctored
as are DC/NY statistics. OPEC likely doesn’t have the oil they
claim.
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Existing
global supplies lie in some of the world’s most unstable and hostile
regions.
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War is
the most energy-intensive endeavor mankind undertakes. War is on an
unending growth track.
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Infrastructure for oil exploration, development and production
remains poor in spite of recent price spikes. Oil revenues have been
used for social causes.
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The
current low oil prices will severely curtail future production.
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Alternative energy development has been dealt a severe blow by low
oil prices.
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Non-conventional oil from oil sands, shale or heavy oil requires
higher oil prices.
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The
global industrialization is not over in spite of the
current lousy global economy. Energy demand is projected to grow by
45% over the next 20 years.
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Oil is
the primary substance that the world continues to rely on for
energy.
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Energy
shortsightedness, complacency and outright greed by the oil lobby
have hindered development of intelligent alternatives.
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Low oil
prices curtail supply, increase demand and bring about high
oil prices.
You can depend on the natural resource cycle.
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The
present and ongoing economic morass is the largest present bearish
factor. Much of the globe will resume growth at some point.
Now, you’re
not likely to amaze your friends and family with these frequently
trotted out oil factors. You likely heard these factors and many more
last summer when all the $200 to $250 per barrel oil projections were
commonplace.
IDE’s job is to provide uncommon insight into past, present and
future events. Along these lines, Rick Pendergraft had the following to
say last July … “The world, not just the U.S., is bordering on an
economic crisis and much of the fault lies with
hugely inflated oil prices”. Rick was right about inflated oil
prices and I stated they were excessive at the time as well.
OK,
McDougal, what are your uncommon convictions about the oil
market right now?
1. Oil was officially taken down last summer. Fine American
institutions like Goldman Sachs and JP Morgan are fully capable of
moving markets in either direction and profiting accordingly. Do you
think you could make a few bucks if you absolutely knew the
direction a market was to be taken? I have zero confidence in the
integrity of elitist paper markets, be they gold, silver, oil,
Treasuries or orange juice.
You may review an article by Rob Kirby on the details of the
oil takedown last summer. Frothy markets are especially
susceptible to interventions because, rightly or wrongly, too many
people are on one side of a trade. Oil was way overpriced at $140
and it’s way under priced at $44. The oil market is another prime
example of manipulation, outright fraud and greed. Market
manipulations against underlying fundamentals are exercises in folly
on a long-term basis.
2. Global oil trading takes place in US Dollars because the dollar
has been the world’s reserve currency since the 1940s. As a
reward for this privilege, the US has exported unfathomable amounts
of debt and toxic fraud to the rest of the world. The historic
economic mess we’re now facing is a direct result of these actions.
Oil will go much higher as the dollar inevitably falters
and possibly crashes. The dollar has appreciated recently only
because of the liquidity crisis and a perceived “rush to safety”.
Watch the dollar and watch our Treasury markets. All fiat
currencies are set to crumble compared to tangible assets like gold,
silver and oil. I agree with our own Ted Peroulakis’ recent
$2000 projection for gold.
3. Global currency blocks are being formed in anticipation of the
dollar losing its reserve currency status. The Euro was designed
with this in mind, but it has problems of its own right now.
Replacement currencies are being designed with commodity connections
once again. Gold is front and center, but you should expect
oil to be thrown into the mix as well! These events are now
inevitable.
In summary, you should definitely not plan on long-term
cheap oil and gasoline. I expect to see oil rise to the vicinity of
$60 over the medium term. We did not add oil or natural gas
positions to my
Resource Windfall Speculator portfolio when oil was
spiking, but we are now on a very selective basis. Now is the time
to be looking into oil stocks.
These are chaotic days and you need to protect yourself accordingly.
It’s also the time we should be working toward honest markets and a
government with integrity. This could be one of the few benefits of
this current fiasco.
Invest Resourcefully,
Rusty
[Ed. Note: Dr. Russell McDougal has dedicated years
of study and investing in the natural resources exploration sector.
During that time he has closed out DOZENS of gains of 500%...
1,000%... 2,000% and more! Currently he is sitting on multiple
thousand percent winners, including one stock that is up a whopping
+5,000%. And for a select group of investors, Rusty has agreed to
share his secrets of success... and his top stock recommendations.
CLICK HERE to learn more...]
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