Bakken Oil Stocks

Written By Brian Hicks

Posted April 29, 2008

Much to the dismay of anti-recession voices, the U.S. economy "indeed has entered into a recession, even if the traditional indicators aren’t showing yet," said Warren Buffett.

Sure, a recession is technically defined as two quarters of negative GDP, but "you can throw that model out," he says. "I think it’s defined by the man in the street a little differently than whether there’s been two quarters of reported (negative) GDP growth. We’re in a recession, unless you want to stick strictly to the technical definition, which I think really doesn’t have much meaning to the fellow who has lost his job or is facing a money market fund that isn’t paying him out or whatever it may be."

Worse, this won’t be your typical, average 216-day recession. "My general feeling is that the recession will be longer and deeper than most people think. This will not be short and shallow. I think consumers are feeling gas and food prices and not feeling they’ve got a lot of money for other things."

So, imagine what happens when and if record oil prices skyrocket to $200 a barrel and pump prices rise to $10 a gallon. By then, we could be talking about the early stages of a depression.

Still, investors have a timely, profitable solution to this mess… and it comes in the form of the largest oil find in U.S. history. More on the Bakken oil play below, but first—the broader story on oil…

Wall Street Oil Prediction: More Record Prices

It was January 2008 when options to buy oil for $200 a barrel grew tenfold on the NYMEX.

The trade doesn’t look so foolish any more.

If you thought T. Boone Pickens’ $125 oil prediction was a shock, CIBC World Markets’ chief economist Jeff Rubin is predicting $200 oil in the next five years.

Oil production, says Rubin, will "barely grow over the next five years, edging up barely more than 1-million barrels a day over the next three years, and only half a million barrels a day between 2010 and 2012." And those increases could fall short of demand, leading to $150 barrel oil by 2010, and $200 a barrel by 2012.

And Rubin isn’t the only analyst calling it.

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.

But wait, we’re not done. The snowball effect is picking up momentum.

Some parts of the U.S., including New York City are seeing $4 a gallon. One station is California is already charging a jaw-dropping $4.62. And here I was damning a $3.56 pump near my home.

New forecasts, however, say pump prices could reach as high as $10 a gallon.

Dune Energy’s Alan Gaines, for example, sees gas rising to $7 to $8. Weiss Research’s Sean Brodrick sees $8 to $10. Gaines, according to a New York Sun report, thinks "there could be a temporary decline in the oil price, he’s convinced an overall uptrend is unstoppable. In fact, he thinks his $200 forecast could be conservative, and that perhaps $250 could be reached. His reasoning: a combination of shrinking supply and increasing demand, especially from China, India, and America."

But it’s not as if we don’t have solutions to the problem.

The Bakken Oil Formation: A Domestic Solution to $200 Oil

One of the solutions is to dig for oil here in the United States. We’ve told you about the Bakken oil field.

We’ve told you that:

  • 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.
  • And that the Bakken is the largest "continuous" oil accumulation ever assessed by the USGS.

The other three can be found in the Bakken report issued by "The $20 Trillion Report." Those plays are reportedly up 54%, 31% and 30% as we speak with further upside potential. Pure Energy Trader has been playing Bakken with great success, too, and is even looking at plays that’ll benefit from oil found under the Gulf of Mexico.

Profit From the Solution With Bakken Oil Stocks

But to understand the full potential of Bakken-related stocks, take a look at what happened to stock associated with the Canadian Oil Sands. The same potential is hidden in Bakken-related stocks.

  • Western Oil Sands (bought by Marathon Oil) ran more than 1,500%.
  • Suncor Energy (SU:NYSE) ran from $15 to more than $110 – a 633% move.
  • And from its lowest point of 1998 to 2000, the Canadian Oil Sands Trust returned as much as 19,900%. These days, it trades at $45, a still impressive gain of 1,025% from its 1998 lows.

This is the type of explosiveness we’re looking for with Bakken stocks. Considering it’s a partial solution to skyrocketing oil, we have a potential solution there.

Who’d have thought we’d have seen $119 oil back in 2000?

Ian L. Cooper

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