Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19
EURO Crisis Set to Intensify: US Dollar Breakout Higher
Stock Market Correction Starting? - 10th Feb 19
Gold Stocks Gather Steam - 10th Feb 19
Are Gold Bulls Naively Optimistic? - 9th Feb 19
Gold, Silver Precious Metals Update - 9th Feb 19
The Wealthy Should Prepare to Be Soaked - 8th Feb 19
US Business Confidence Is Starting to Crack - 8th Feb 19
Top Myths and Facts about ULIP Plans - 8th Feb 19
A Major Stocks Bear Market in 2020? - 8th Feb 19
Gold Market Extremes Test Your Mettle - 8th Feb 19
The Venezuela Myth Keeping Us From Transforming Our Economy - 8th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

How to Profit From Peak Oil as Crude Oil Prices Set to Double

Commodities / Crude Oil Jun 18, 2010 - 05:42 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticlePeter Krauth writes: If there's one thing U.S. investors need to know about the future, it's this: Oil prices are headed higher - much higher, in fact, and could well double to reach $150 a barrel.

And if that's what the future holds, you may as well go along for the ride...


U.S. oil prices fell for the first time in four days yesterday (Thursday) - ending a rally that had taken crude prices to a six-week high. Crude oil for July delivery now stands at roughly $77 a barrel, meaning oil prices would need to nearly double to hit my target of $150 a barrel.

But I think that can happen - and here's why.

A Wakeup Call
America is about to get a sobering slap in the face.

And that slap will have to do with the country's passive, unimaginative and downright-haphazard national energy plan.

Under U.S. President Barack Obama, it seemed as if the United States was finally going to create the innovative, broad-based and forward-looking energy policy that this country has badly needed for decades.

Then along came BP PLC (NYSE ADR: BP), and the Deepwater Horizon oil spill that now threatens the Gulf of Mexico ecology and the entire U.S. economy. Now the villager pitchforks are all pointing at BP for that mammoth oil spill - instead of at the Inside-the-Beltway crowd as a way of "motivating" them to re-cast the energy policy to account for the BP disaster.

Did BP mismanage this fiasco? That's a pretty safe bet.

Is offshore oil drilling about to suffer a major kick in the pants? It definitely seems so.

I'm not expecting any new offshore drilling for some time: Public sentiment has swung way against offshore exploration, and I expect the government to seriously ramp up oversight.

U.S. consumers flat out take oil - and energy in general - for granted: The lights come on at home or at work when we flip the switch; the pumps are full when we pull up to the gas station; and oil and energy are still pretty cheap... at least, for now.

But Americans need to realize that "demand" is evolving. Other countries around the world are looking to improve their standards of living. And based on the technologies now available, such upgrades require oil - lots of it, in fact. Oil influences so many facets of our daily lives: Transportation, energy, consumer goods, packaging ... the list is long. And given our current plight, that list is also sobering.

I know, I know, we may only now be emerging from a deep recession, Europe's got big problems, and we could experience a slowdown in growth for Asian economies. But despite this, oil consumption is still rising. And America remains a big part of global demand.

America' Appetite for Oil

The United States consumes 20 million barrels daily. That's more than the next-five-largest consumers - China, Japan, Russia, Germany, and India - combined. Of those 20 million barrels, 56% are imported. The imports alone represent more oil than Saudi Arabia produces in a day; in fact, it accounts for nearly 20% of the world's entire production.

Meanwhile, America's own oil is drying up. The Gulf spill - and the accompanying ban on offshore drilling - will only exacerbate the shortfall that's sure to escalate.

Even with all the exploration dollars and the most advanced exploration technologies available, the United States' oil-production numbers have been heading south for 40 years.

Sure, there have been ongoing discoveries, but too few, and none of the size required to stem the nation's growing dependence on foreign oil.

Last November the IEA (International Energy Agency) reported that oil production from operating wells has declined by as much as 9.1% annually. Then in March, the U.S. Department of Energy (DoE) indicated that if investment is insufficient, there could be worldwide declines in liquid fuels production starting next year and stretching to 2015.

But relax. According to the U.S. Department of Energy (DOE), the concept of "peak oil" is, well, bunk.

Feeling reassured now? Me neither. And here's what's bothering me...

Slick Contradictions

Last April, in the aptly titled report, "Meeting the World's Demand for Liquid Fuels, that same DOE projected stable increases in fossil fuel production all the way to 2030. How anyone can forecast 20 years into the future with a straight face baffles my mind.

Stay with me here, because that same DOE, in that same report, acknowledges that it doesn't know where this additional production will be sourced. Their report goes on to indicate that current and known oil production sources will start to decline within just two years.

It would seem the government believes that the expected daily shortfall of an estimated 10 million barrels of crude (again, nearly all the oil the Saudis produce) will just be "wished" into production.

That makes it my turn for making a prediction. And it's one that I'm pretty confident about making: I don't expect anyone to find another Saudi Arabia's worth of oil anytime soon, much less get it into production by 2012. But maybe that's just me.

And when producers are able to fetch $100 per barrel, there's little incentive to boost production and drive prices back down. Instead, this allows them to maximize profits, even as they extend reserves. That's just shrewd business strategy for those producers.

Plus, with so much oil controlled by national governments - Saudi Arabia, Iran, Libya, Algeria, Venezuela, Nigeria, Russia and Mexico, for example - years of severe mismanagement and under-investment bode badly for supply, but bode well for significantly higher prices.

A Pair of Plays on Higher Oil Prices

I don't see any major production increases anywhere on the horizon, yet demand shows no real signs of easing. Therefore, the only thing left for us to do is to position ourselves for maximum profit.

After reviewing a number of energy-related companies, securities and funds, I decided on two that offer the right mix of such factors as upside potential, liquidity, safety and timeliness.

Those two oil-related investments consist of:

•Apache Corp. (NYSE: APA): This is an explorer/producer of oil, natural gas and natural-gas liquids. It's a $30 billion market-cap company, trades at a palatable Price/Earnings (P/E) ratio of 14, and it pays a small dividend. The company explores and operates in the Gulf of Mexico, Texas, the Anadarko Basin, Canada's Western Sedimentary Basin, onshore Egypt, offshore Western Australia, in the North Sea (off the coast of the United Kingdom) and in Argentina and Chile. I like the geographical mix, as well as the commodity mix, which breaks down as 51% oil and liquids, 28% North American Gas, and 21% international gas. The BP Gulf oil spill seems to have exaggerated recent price weakness for Apache. At the time of this writing, Apache's shares were trading about 12% below the 200-day moving average and heading north. Apache makes a great long term "Buy."
•First Trust ISE - Revere Natural Gas Exchange-Traded Fund (NYSE: FCG): This is an ETF that tracks the performance of a basket of companies that are focused chiefly on natural gas exploration and production. The United States needs to continue emphasizing its own energy resources, especially resources of the-more-environmentally-friendly variety. Natural gas clearly fits that bill, and the stuff is relatively cheap at around $4.80 per million British thermal units (MMBtu). This ETF's holdings include such heavyweights as Mariner Energy Inc. (NYSE: ME), Brigham Exploration Co. (Nasdaq: BEXP), Pioneer Natural Resources Co. (NYSE: PXD), Forest Oil Corp. (NYSE: FST), EOG Resources Inc. (NYSE: EOG), and Anadarko Petroleum Corp. (NYSE: APC). The fund is currently trading below its 200-day moving average and its share price also is trending higher. So the FCG ETF is a clear "Buy" at current levels.
Sure, it would be nice to just move to renewable pollution-free fuels, but that's decades away - if ever. Besides, many technologies can't be converted, so as long as they're in use, oil will have to fuel them.

If the picture of the future I've painted here is one that's causing angst, or even fear, that's probably not a bad thing: This is the future I believe we're going to have to face.

My advice: Get used to it, and get ready for it. Oil is going higher. You might as well go along for the ride.

Source: http://moneymorning.com/2010/06/18/oil-prices-20/

Money Morning/The Money Map Report

©2010 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules