In a Hand Basket

Written By Luke Burgess

Posted April 3, 2006

Dear Wealth Daily reader:

The clock is ticking.

Last week the UN Security Council told Iran it had 30 days to halt its uranium enrichment endeavor.

If the country refuses to cordially roll over to meet the demands by the time the clock runs out…well…the UN will be forced to…have another meeting. That’s right. Another meeting.

Not too big of a threat if you ask me. I’m sure Iranian officials weren’t shaking in their boots when threatened with another meeting.

Regardless, the whole Iranian brouhaha certainly has investors concerned.

Oil futures have recently slinked beyond $67 and well on their way back to $70 in the midst of this nuclear quarrel. Today crude for May delivery topped off at $67.90. Take a look:

The high price comes also as Iran has tested what it claims is the world’s fastest underwater missile.

Iran exports 2.5 million barrels of oil a day and holds the world’s second-largest natural gas reserves. Investors are concerned that Iran will stop exporting oil if faced with a military conflict.

The fact is, however, there’s still a lot of uncertainty that remains in how the Iranian situation will unfold. In the meantime investors will continue to push oil prices higher until the situation is resolved.

Whether the Iranians shut down the oil flow or not, it’s too early to say. Regardless, there’s one association that claims a major global oil disruption is quite likely to occur within a decade.

80% Probability of Major Oil Disruption in Next Ten Years

The Energy Modeling Forum was established at Stanford University in 1976 to provide a structured forum for discussing important energy and environmental issues.

The organization provides a nonpartisan platform that peruses objective consideration of opposing views.

Last week Hillard Huntington, Executive Director of the EMF, testified before the Senate Foreign Relations Committee with some disturbing news.

Huntington told senators that the EMF calculated that the probability of a major oil supply disruption (that is, a 2 million barrels or more per day disruption) lasting at least one month during the next ten years is approximately 80%!

Based on its studies, the EMF concluded that:
  • The probability of a net disruption of 2 million barrels or more per day lasting at least 6 months is approximately 70%;
  • The probability of a net disruption of 2 million barrels or more per day lasting at least 18 months is approximately 35%;
  • The chance of a 3 million barrels or more per day net disruption or more lasting at least 1 month is 65%; the chance of 5 million barrels or more per day or more is about 50%.
Let me put that in perspective for you.

Last year’s hurricane’s shut in about 1.5 million barrels of oil per day. This caused about an increase in 10% crude prices. A 2 million barrel per day disruption would cause similar price increases. A 5 million barrel per day disruption…well…outta’ here.

The EMF assessed disruption resulting from geopolitical, military, and terrorist causes for disruptions outside of the US. It did not, however, assess the potential for domestic and weather-related oil disruptions.

So what does this mean for you as an investor?

Simple — buy energy stocks that are least likely to be affected when the feces really hits the fan.

The EMF categorized the countries in which the disruptions are the most likely to occur into four regions:
  • West of Suez, comprising Algeria, Angola, Libya, Mexico, Nigeria and Venezuela
  • Saudi Arabia
  • Other Persian Gulf Region, including Iran, Iraq, Kuwait, Qatar, UAE and Oman
  • Russia and the Caspian States.
Note that Canada is not on that list. And let me wrap up today’s letter with a quick mention of the oil sands.

Not Too Late to Buy Canadian Oil Sands

You know, I hear a lot of people say that it’s too late to get into the Canadian oil sands stocks. And that we’ve missed the boat and so forth. But these people couldn’t be more wrong.

Yeah it’s true that you could have already made a bundle on Canadian oil sands plays.

In fact, Mike Schaefer was telling me today that his oil sands recommendations are some of the biggest winners on his Pure Energy Report portfolio.

But with global peak oil production imminent, these stocks still have much more room to grow.

Furthermore if a major oil production disturbance were to occur like the EMF is predicting, these Canadian oil sands companies are almost guaranteed to increase their market value. And increase it at a staggering rate.

Look, we’re not here to drag you kicking and screaming into wealth.

It’s up to you to decide.

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