Best of the Week
Most Popular
1.The Trump Reset, US Empire's Coming Economic, Cyber and Military War With China (2/2) - Nadeem_Walayat
2.Now Is the Time to Buy Gold - 5th Jan 17 - John Grandits
3.CIA Planning Rogue President Donald Trump Assassination? Elites "Manchurian Candidate" Plan B - Nadeem_Walayat
4.The Trump Reset - Regime Change, Russia the Over Hyped Fake News SuperPower (Part1) - Nadeem_Walayat
5.Most Popular Financial Markets Analysis of 2016 - Stock Market Crash Postponed Again - Nadeem_Walayat
6.No UK House Prices Brexit Crash 2016 Despite London Weakness, Forecast 2017 - Nadeem_Walayat
7.President Trump Understands the NSA, CIA... LIE, America's Intelligence Agencies Crime Syndicate! -Nadeem_Walayat
8.President Donald Trump's 2017 New Year Message, BBC Fake News, Was 2016 a Dream? - Nadeem_Walayat
9.Major Stocks Bear Market Still Looms - Zeal_LLC
10.Biased 2017 Forecasts - Debt, Housing and Stock Market (1/2) - James_Quinn
Last 7 days
The Trump RESET Starts on US Presidential Inauguration Day 2017 - What to Expect - 20th Jan 17
Will the CIA Assassinate Rogue President Donald Trump Like JFK? - 19th Jan 17
Bonds, Dollar, Stocks, Gold, Silver Major Markets at Turning Points - 19th Jan 17
Populism; the Danger? What About Debt? - 19th Jan 17
Gold Price 50-DMA Breakout - 19th Jan 17
Turkey, 'Axis of Gold' and End of US Dollar Hegemony - 19th Jan 17
The Most Important Market Chart on the Planet - 19th Jan 17
Trump Deficits Will Be Huge - 19th Jan 17
Stock Market Trading Patience Pays Off with CHK Using Momentum Reversals - 19th Jan 17
Gold - How to "Buy Low and Sell High" Like a Pro - 19th Jan 17
State of the Global Stock, Financial and Commodity Markets Report 2017 - 19th Jan 17
The Hunt for Russia's Next Enemy - 18th Jan 17
Returning Gold Bulls - 18th Jan 17
Biotech Breakthrough Could Create A $11.4 Trillion Opportunity - 18th Jan 17
Bitcoin and Gold - Outlook, Volatility and Safe Haven Diversification - 17th Jan 17
Stock Market Uptrend on Borrowed Time - 17th Jan 17
The One Stock to Retire On - 17th Jan 17
Trump anti-Communist Counter Revolution - 17th Jan 17
US Stock Market Update as the Trump Inauguration Approaches - 17th Jan 17
The American Crisis - Common Sense 2017 - 17th Jan 17
Obama Leaves, Hope Arrives, Will Stupid Stay? - 17th Jan 17
Damage Inflicted by Precious Metals Manipulation Is in the “Multi Billions” - Keith Neumeyer - 17th Jan 17
Gold Price Forecast 2017 Update - Video - 17th Jan 17
The Story of the U.S. Regime Change Plan in the Philippines - 16th Jan 17
Gold Price 2017 Trending Towards $1375 as Forecast - 16th Jan 17
'Deep State' CIA Director States We are Not NAZI's, Warns Trump Does Not Understand Russian Threat - 15th Jan 17
UK House Prices Forecast 2017 - Crash or Bull Market? - Video - 15th Jan 17
SPX Stocks Bull Market Update - 14th Jan 17
President Trump vs the Deep State that Hides in Plain Sight - 14th Jan 17
The Impact of Sir Alex Ferguson's Retirement on Man United's Share Price - 14th Jan 17
What Can Stock Market Tell You About Politics? - 13th Jan 17
Big Gold Buying Coming 2017 - 13th Jan 17
A Bullish Case for Gold 2017 - 13th Jan 17
Will Stocks Bull Market Continue to Charge or is it Time to Sell the News - 13th Jan 17
Gold and Silver Off To Shining Start to 2017 - 13th Jan 17
Gold’s Fundamental Outlook for 2017 - 13th Jan 17
Is trading stocks and shares just as luck-based as roulette? - 13th Jan 17
Trump CIA Like Nazi Germany - Fake MI6 Intelligence leaked to Fake News Mainstream Media - 13th Jan 17
USD in Decline. SPX and TNX May Follow - 12th Jan 17
CIA War On Trump - Leaks Fake MI6 Intelligence to Fake News Broadcast Media - 12th Jan 17

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

State of Global Markets 2017 - Report

Not Even Saudi Arabia Can Save Us From High Crude Oil Prices

Commodities / Crude Oil Mar 28, 2012 - 04:22 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJason Simpkins writes: With oil prices soaring ever higher, Saudi Arabia stepped in last week and vowed to increase its production by 25% if necessary.

But while that assurance managed to siphon a few dollars off of oil futures, the reality is there's nothing Saudi Arabia - or anyone else, for that matter - can do about rising oil prices.


In fact, crude is still on track to reach $150 a barrel by mid-summer.

As Saudi Oil Minister Ali Naimi pointed out last week, current oil supplies already exceed global demand by 1 million-2 million barrels per day.

For its part, Saudi Arabia is already breaking its own OPEC-imposed production quota limit, churning out about 10 million barrels of oil per day - close to its 12.5 million barrel capacity.

Yet the effect of that production has been negligible.

Oil is still trading at $106 a barrel on the NYMEX - something that has clearly flummoxed the world's largest oil producer.

"I think high prices are unjustified today on a supply-demand basis," said Naimi. "We really don't understand why the prices are behaving the way they are."

Naimi and his colleagues may not understand oil's price gyrations, but Dr. Kent Moors, an adviser to six of the world's top 10 oil companies and energy consultant to governments around the world, does.

"Despite the excess storage capacity in both the U.S. and European markets and the contracts already at sea, oil traders set prices on a futures curve," said Moors. "In a normal market the price is set at the expected cost of the next available barrel. During times of crisis, on the other hand, that price is determined by the cost of the most expensive next available barrel."

And with tensions with Iran running high, we are currently in crisis mode. Pushed to the brink by Western sanctions, Iran has threatened to close the Strait of Hormuz - the narrow channel in the Persian Gulf through which 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass.

If Iran closes the Strait of Hormuz, crude oil prices will pop by between $30 and $40 a barrel within hours. Should the strait remain closed for 72 hours, oil trading will push up the barrel price to $180 in New York, and closer to $200 in Europe.

The situation is further complicated by potential military conflict - such as an Israeli air strike on Iran's nuclear facilities.

And with indications that Iran will have the ability to develop nuclear weapons in the next 18 to 24 months, Western powers have apparently shifted their focus from halting Iran's nuclear program to sowing instability in the country with the hopes of catalyzing a regime change.

So what does that mean for investors?

Making the Most of High Oil Prices
First and foremost, it means oil prices are set to go even higher - particularly as we approach the high end of seasonal demand.

To be clear, the only ones who stand to benefit from the situation in Iran are commodities brokers. Whether Iran successfully develops a nuclear bomb, Western powers intervene with military force, or the country's political regime is overthrown, the resulting turmoil will lead to an oil price spike.

Consider the effect the Libyan civil war had on the energy markets last year: Libya's revolution took oil prices from $83.13 a barrel on Feb. 15 to $113.39 a barrel on April 29.

That's a 36% surge in a period of about two and a half months.

At that time, Libya was only the world's 17th-biggest oil producer. Iran is the world's fourth-largest oil producer.

The country pumps out about 3.6 million barrels of oil a day, which is about 5% of the world's total supply. By comparison, Libya produced about 1.5 million barrels of oil per day prior to its civil war, or about 2% of the world's total.

And the situation would be further exacerbated if Iran follows through on its threat to close the Strait of Hormuz.

So here are some steps you can take to brace yourself now, if you haven't already.

The easiest way to play the looming rise in oil prices is through exchange-traded funds (ETFs).

There are several from which to choose, including: The iPath S&P GSCI Crude Oil Total Return ETF (NYSE: OIL), the PowerShares DB Oil Fund (NYSE: DBO), the SPDR S&P Oil & Gas Explorers & Producers Fund (NYSE: XOP) and the SPDR Oil & Gas Equipment & Services Fund (NYSE: XES).

Going the Distance as Oil Prices Soar
You might also consider Marathon Petroleum Corp. (NYSE: MPC) - an oil refiner that was spun-off from Marathon Oil Corp. (NYSE: MRO) in July of last year.

The new company came away with all of Marathon's downstream refining and marketing assets. It has refineries on the Gulf Coast and in the Midwest, and it owns a pipeline network for crude and refined products.

Marathon Petroleum also has a profitable retail footprint.

It operates 5,100 Marathon-branded gas stations in 18 states and 1,350 Speedway-branded convenience stores in seven states. It has more than 9,600 miles of pipelines into and out of its facilities.

However, the company's greatest strength is the location of its assets.

You see, production from North Dakota's Bakken oil shale formation - the largest known reserve of light sweet crude in North America - is soaring.

It went from a mere 3,000 barrels a day in 2005 to 225,000 in 2010, and could hit 350,000 barrels a day by 2035, according to the Energy Information Administration.

Currently, there aren't many ways to ship oil out of the basin, and supply in the region is outpacing refining capacity. That's helped keep the price of West Texas Intermediate (WTI) crude lower than the price of Brent crude in London.

Since U.S. East Coast refineries usually source Brent-priced crude oil, their input costs have skyrocketed. This is one of the reasons major integrated oil companies have shed their refining capacities.

But Midwest refineries have been able to save money by running WTI-priced oil, getting crude at significantly cheaper prices than globally sourced locations.

With the Bakken formation ramping up production in coming years to meet growing demand, the region's refineries will continue to enjoy low input costs. It also means refineries that have access to Bakken oil will have a steady supply that's cheaper than their competitors.

Still, despite its upside, Marathon isn't the best play investors could make right now.

Aforementioned energy expert Dr. Kent Moors actually has the inside scoop on an even bigger profit opportunity - but be forewarned, it's not for mainstream investors.

To find out more, please click here.

And for Dr. Moors' own in-depth analysis of oil prices and other matters pertaining to the global energy market, be sure to read tomorrow's (Thursday's) edition of Money Morning.

Source :http://moneymorning.com/2012/03/28/not-even-saudi-arabia-can-save-us-from-high-oil-prices/

Money Morning/The Money Map Report

©2012 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 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

© 2005-2016 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

Catching a Falling Financial Knife