Failure to account for peak oil, rising demand, supply erosion, and the death of the dollar led us to $127 oil. And it’ll only get worse, as supply disruptions, geopolitical tensions, demand, and the weather continue to wreak havoc. We may even see an increase in demand from China to generate power after the May 12 earthquake.
Goldman just raised its oil price outlook to $141 from $107, citing supply issues.
Arjun Murti believes that we could see $150 to $200 oil over the next six to 24 months.
OPEC President Chakib Khelil won’t rule out $200.
And it’ll happen as long as soaring oil prices do not put the breaks on oil demand.
JPMorgan is even aware of that, announcing that it will begin trading physical oil by the end of 2008, "increasing its exposure in a market that could rise to $200 a barrel."
"…heck you can kiss $45 a barrel goodbye… maybe even $50! In fact, we’re probably facing a price spike between $80 to $100 a barrel within the next 24 months," said Brian Hicks in January 18, 2006.
Like it or not, the economic doomsday scenario will happen as long as there is an absence of market-cooling excess production capacity. When supply finally eclipses demand, which will happen when ordinary consumers can no longer afford energy costs, then we’ll see a reversal.
Oil Is Still Not Expensive
Oil is not too expensive at $127. One, production quotas can’t keep up with world demand for 82 million barrels a day.
And two, oil is still too cheap, says Dr. Colin Campbell, former executive VP of Total-Fina. "the only way to control demand is to price oil realistically, allowing for time to find fuels to fill the gap between an oil economy and a renewable fuel economy."
And it’s not as if we don’t have solutions to the problem.
How do you profit from rising oil cost? One way is to buy oil at $73, as we’ve discussed in Pure Energy Trader.
There’s the Bakken solution, where up to 4.3 billion barrels of oil could be recovered from the Bakken shale formation – a 25-fold increase compared to its initial assessment in 1995.
We’ve even spoken about wind energy and T. Boone Pickens’ plans to spend some $10 billion to build the world’s biggest wind farm.
There’s even the solar solution. From an investing perspective, if the Senate passes a bill that includes extensions of tax credits for renewable energy sources such as wind, solar and biomass, the sky’s the limit for renewable energy.
We have possible solutions to $127 oil. But changing spending habits will be tough. It’ll happen. It’ll just take awhile.
Another Way to Profit from Higher Oil
Short the airlines. "No airline can make money at $123-a-barrel oil," says Southwest CEO Gary Kelly.
Last summer, before the fuel price run, we were okay with flight ticket prices. Airfare, at the time, was compatible with budgets. And all was okay for airlines, showing signs of life with profitable quarters.
Then the price of fuel went nuts, running to $127.
Nowadays Northwest has plans to raise fuel surcharges by $10, matching the rise at Delta Air, United Airlines, American Airlines and Continental Airlines.
Can you imagine what’ll happen to airlines when oil hits $200? It won’t be pretty.
Ian L. Cooper
In case you missed our other investment opportunity highlights, here’s what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of May 12, 2008.
U.S. Housing Market Outlook: The Worst is Over… Again (Says These CEOs)
There is no bottom for banks until housing bottoms. And that won’t happen until 2010… if we’re lucky. Yet, the banking community would have us believe we’re bottoming now. But they’re wrong. Banks will continue to crumble and should be shorted at tops.
Income Investing: The 7 Golden Rules for the Lazy Investor
By Warren Buffett’s own math, matching the gains of the U.S stock market over the last century is going to be quite a tall order. In his most recent annual report Buffett once again pointed out that in order to equal the U.S. market over the 20th century, the Dow will need to close at roughly the 2,000,000 mark on December 31, 2099.
Investing in Eastern Europe: Profits in Russia and Former Satellite States
The Soviet Union, Czechoslovakia, and Yugoslavia are no more. But the countries that comprised them now enjoy some of the world’s highest economic growth rates, creating ever-increasing options for investors.
Peak Oil and the Rail Revolution: Say Goodbye to Cheap Air Travel
"I had no doubt that the air travel business was in for a world of hurt, once oil prices started going up fast. And when that happened, air travel to such far-flung destinations would be out of reach for regular folks like me. I just didn’t think that day would come quite so soon. I can already see my window of opportunity to lay on the beaches of Thailand, or hike the rugged mountains of Tibet or Japan, closing."
Foreclosures Hit New Records: Courts Jammed with New Notices
Riddle me this housing bulls (what’s left of you). How can housing possibly be anywhere near a bottom when foreclosures continue to set one new record after another?
Solar Technology Stocks: Don’t Miss the Next 20% One Day Solar Gain
The renewable energy markets are maturing quite rapidly. The solar sector, in particular, is showing signs of advancement as clear leaders are emerging every day. What we’re seeing is a shift in the way the market as a whole views this industry.
Iamgold Increases 1Q Net Earnings by 205% yr/yr: Production Increases to 234,000 Ounces of Gold
Iamgold produced 234,000 ounces of gold during the quarter, compared with 219,000 ounces one year ago, and realized an average gold price of $899 an ounce, 39% higher than in the same period of 2007.
Investing in Physical Gold: Breaking Two Myths of Investing in Physical Gold
There is a herculean mountain of inaccurate information floating around about investing in physical gold bullion.
Among these erroneous concerns is the belief that storing physical gold is a difficult and that physical gold bullion is illiquid, making it an unwise investment.
WorldWater & Solar Technologies: Clean Water from Solar Energy
U.S.-based company WorldWater & Solar Technologies (WWAT.OB) has experience in dealing with water-related crises. From New Orleans to the Middle East and hopefully soon to Myanmar, they create the solar panels that drive water pumps for many applications.
Trading Secrets of the 3160s
OPEC President Chakib Khelil won’t rule out $200 oil, even though supply is adequate, because the market is driven by the dollar, as the world oil markets face their biggest supply disruption in years. "In terms of fundamentals, stocks are high, demand is easing, supply is satisfactory. Therefore normally, without geo-political problems and the fall of the dollar, the prices of oil would not be at this level," he said.