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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Crude Oil Headed Unimaginably Higher!

Commodities / Crude Oil Jul 26, 2010 - 08:06 AM GMT

By: Larry_Edelson

Commodities

Best Financial Markets Analysis ArticleA very well-known and internationally respected forecasting firm believes the price of oil is headed “unimaginably higher” in the next few years. To somewhere north of $300 a barrel. I couldn’t agree more.

What will drive the price of oil so much higher, when most of the western world is either in a deep recession, or worse, a depression?


We can talk about peak oil, or supply and demand forces, global warming, and so forth. But in reality, oil ultimately heading to $300 comes down to two very simple forces …

First, the inevitable demise of the U.S. dollar. I’ve written many times about this in the past, and I’ve been one of the only analysts in the world who has accurately predicted the now almost 11-year long bear market in the dollar.

Make no mistake about it: Despite an occasional rally in the dollar, the greenback is utterly destined to lose at least half its current purchasing power in the next two to three years, if not more.

And then even lose its status as the world’s reserve currency.

The reasons are varied, and inevitably bearish for the dollar. All you have to do is understand that the Federal Reserve stands ready, willing, and able to print unlimited amounts of paper money to pump up the U.S. and global economy, and that it will not hesitate to do so.

Federal Reserve Chairman Ben Bernanke confirmed it last week at his testimony on Capitol Hill when he stated emphatically that the central bank stood ready to act if the economy slows, and will take additional measures to support the economy.

That’s why, despite all the hullabaloo about the dollar’s recent rally in forex markets, the dollar has shed 7.33% since June 7, a whopping decline by any measure.

The dollar has shed 7.33% since June 7th, a testament to its long term bear market.

Second, the inevitable rise of China. At its current rate of economic growth, which is NOT going to slow substantially anytime soon, China’s economy will overtake the U.S. economy in less than 10 years.

And one of the ways China’s growth is showing up is, naturally, in energy demand.

In fact, according to the International Energy Agency (IEA), in 2009 China officially overtook the U.S. as the world’s top energy user, far faster than expected, and in spite of the global financial crisis.

China used up 2,252 million tons of oil equivalents last year, about 4% more than the U.S., which burned through 2,170 million tons, according to data from the IEA.

But energy consumption in China is still in the early stages of its growth.

In terms of total energy usage on a per capita basis, U.S. consumes 11.4 kW per person per day, while China consumes only 1.6 kW.

In other words, China consumes one-seventh of the amount of energy the U.S. consumes on a per capita basis — and China is already the world’s biggest consumer of energy.

As China’s economic growth continues and hundreds of millions more people are lifted out of poverty, it’s not too hard to see how the country’s need for all forms of energy is going to explode higher.

Or how that demand could easily push the price of oil “unimaginably higher” in the years ahead.

My view: Oil is one of the very best investments you can make in your portfolio for the long haul.

No matter what the economy or stock markets do shorter-term.

Energy shares explode more than 11% higher in just 12 days -- a testiment to their long term potential

That’s why, in just the last 12 days, energy shares have been exploding to the upside, with the typical oil and energy share gaining more than 11%.

And all of this is also why I expect a huge wave of mergers and acquisitions in the energy sector in the months and years ahead.

Huge, burgeoning Asian demand for energy and energy services, generating surging revenues … plus the sliding value of the U.S. dollar will mean loads of companies will also want to put their money to work in the energy sector.

Which is why you should consider investments for the long haul in my …

Short List of Prime Investment Candidates in the Oil and Energy Industry

These are oil and energy companies I believe every investor should own a piece of for the long haul. They represent the top players in their particular niches in the industry … or have huge undervalued oil and gas reserves … and could eventually be prime takeover candidates by larger companies.

table Headed Unimaginably Higher!

They are certainly not the only ones. But they are companies I would consider buying now and putting away for a few years.

Each and every one of them could easily double … triple … or even quadruple in the next couple of years. I suggest you buy them and sock them away.

Not at the expense of any of your gold investments, mind you.

Lastly, stay out of the broad stock markets, except for the above investments and any others recommended in my Real Wealth Report.

Short term, yes, the Dow could rally back to the 11,000 level. But the risk is to the downside, down to Dow 9,000, and probably lower, to Dow 8,700.

You can see the cycles forecast in this updated cycle chart that my colleague, Richard Mogey at the Foundation for the Study of Cycles, and I just put together. While we do expect a rally into late August/ early September — thereafter we should see one doozy of a decline, a nasty sell off that will catch most investors way off guard.

S&P 500

The way I suggest to play it: With an inverse ETF on the broad markets, such as the ProShares Short S&P 500, symbol SH, or the ProShares Short Dow 30, symbol DOG.

But don’t buy them yet. Consider buying them as soon as you see the Dow hit 10,800.

Finally, don’t listen to all those pundits out there who are telling you to get out of Asian, and especially Chinese-based investments. They’ve been wrong time after time about Asia and China, and they are going to be dead wrong again.

Instead, Asia and China, in addition to gold and oil, represent your keys to wealth in the months and years ahead. So be sure to also follow our Asian expert, and my good friend, Tony Sagami’s column, published every Wednesday.

Best wishes, as always, for your health and wealth!

Larry

P.S. For just $99 a year you can get ALL of my timing signals, recommendations, risk reduction strategies, insights into the markets, including how I expose how the powers-that-be that are destroying our dollar — and more. It’s a freaking bargain. Join now by clicking here.

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.


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