New information reveals Saudi Arabia is building oil reserves during its slack demand months.
Goldman Sachs cited a crude oil inventory build of 35.4 million barrels in the period December-February, based on numbers from the Joint Organizations Data Initiative (JODI).
This oil stayed in Saudi Arabia and wasn't exported. Goldman said this was “in an anticipation of a substantial increase in demand that cannot be covered by simply raising production levels.”
The Kingdom is stockpiling 390,000 barrels per day — not as a guard against Iran sanctions, but rather as insurance against peak energy demand, which happens during their hot summers.
You see, electricity demand in Saudi Arabia has increased 500% in the past nine years while oil production has flattened out...
This Stockpiling is New
In the past, Saudi Arabia would simply increase production.
Stockpiling would indicate they cannot.
And right now, the global oil market is extremely tight — even with the return of Libyan crude and the slowdown of economies in China and Europe.
If the Saudis are at the point of lower production, oil is going to get a lot more expensive...
As you can tell by the blue line in this chart from the U.S. EIA, increases in production are slowing down:
The red line is the normal growth in production of 1.6% a year. The blue line is the actual production.
Between 2005 and 2011, crude production rose only 0.5% a year.
No one country can make up for this shortfall.
It's only a matter of time before the spare capacity is gone.
The Sheiks continue to claim they have total capacity of 12.5 million barrels a day. There is no evidence behind this.
Saudi crude production cannot be sustained over 10.5 million barrels a day. In November 2011 production reached the highest level in 30 years, hitting 10.047 million bpd.
Since then, it has hovered just below the 10 million bpd mark.
The dominant investing trend you can take to the bank is one of increasing oil demand — even during recessions — coupled with decelerating production.
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The Wall Street Journal tracks political ads every week.
The No. 1 ad last week was “$9 Gas.” It came from American Energy Alliance and attacks President Barack Obama on his energy record.
According to WSJ:
"The ad cuts between the failure of solar-power firm Solyndra, the president’s opposition to Alaska drilling and the Keystone XL Pipeline, and 2008 remarks from now-Energy Secretary Steven Chu on raising gasoline prices."
(In a 2008 interview, he told the Wall Street Journal: “Somehow we have to figure out how to boost the price of gasoline to the levels in Europe.”)
Rising gas prices are a major concern for U.S. households going into the election, and just last week a WSJ/NBC News poll found that Americans are growing increasingly concerned.
Asked how much of an impact the recent rise in gas prices has had on you and your family, 63% of people said "a great deal or quite a bit" — up from 49% in March.
Somali Penny Stocks
My readers have been cleaning up on East African oil stocks as more and more hydrocarbons are discovered in Kenya and Mozambique.
A few years ago, I was following a small Australian company that had talked some tribal elders into letting them search for oil in Northern Somalia, or what is called Puntland.
Make no mistake; Somalia has the same geography as the Arabian Peninsula and is thought to hold a mother lode of oil — some six billion barrels.
As you might expect, this small wildcatter ran into deadly troubles. Hand grenades were tossed into the back of their exploration vehicles.
Now another little company that trades in Australia — called Jacka Resources — has entered into an agreement with the breakaway province of Somaliland in southwestern Somalia...
The stock has been on fire lately.
If you are into high-risk Somali penny stocks, this might be the one for you.
That said, I hate buying penny stocks at the top. I'd rather sit on dead money for a year than get whipsawed out of a fast trade.
You might want to wait until the post al-Qaeda attack sell-off to buy the dip.
All the best,
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.