Note: Parts of today’s Wealth Daily originally appeared in Saturday’s Energy and Capital. We’re updating you on new developments and showing how you can profit as oil surges to $143.
As we told weekend Energy and Capital readers, the Energy Department believes oil prices will fall to $70 a barrel in the next seven years, as production begins in Azerbaijan, Canada, Brazil and Kazakhstan.
But a $70 scenario assumes that OPEC producers will maintain their 40% market share of global oil supply, with plans to invest in additional production. From $70, it’s expected to rise to $113 a barrel by 2030, a sharp revision from last year’s $59 by 2030 report.
Even $113 may be off, as the issue of supply vs. demand force prices higher. It’s not speculation sending oil higher.
Warren Buffett even agrees that it’s a supply and demand issue, and not speculation.
"In my lifetime, up until the last year or two, there’s been a huge amount of excess supply available," he said. "We don’t have excess capacity in the world anymore, and that’s why you’re seeing these oil prices."
Couple that with news that world energy consumption will rise 50% between 2005 and 2030, as demand in developing countries rises 85% and oil "worst case" scenarios become plausible.
Oil and the US Dollar: What Jim Rogers Is Advising Now
Jim Rogers, who in 2006 predicted $100 oil and $1,000 gold, now says investors should avoid the dollar and instead favor commodities.
According to Bloomberg, Rogers said to avoid the dollar "at all costs" in a speech in Shanghai Monday. "The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything, including seeds."
Rogers also anticipates further gains in oil prices, which reached a new all-time high of $143 on Monday. "Crude oil prices are not high enough to stop people from consuming more energy,” he said. "The bull market will not go to an end until supply and demand come to a balance."
Also not helping our oil woes, OPEC President Chakib Khelil is out predicting $170 a barrel before the end of 2008. According to Bloomberg, Khelil said, "Oil prices are expected to reach $170 as demand for fuel is growing in the U.S. during the summer period and the dollar continues to weaken against the euro.”
Israeli-Iranian tensions over nuclear projects aren’t doing much to help. There’s a growing fear that in the event of war with Iran, the Strait of Hormuz (passageway for 90% of oil exported from Gulf producers) would be jeopardized. If that happens, we’d see an immediate oil super-spike.
Iran’s Revolutionary Guards has already said it would impose controls on shipping in the Persian Gulf and Strait of Hormuz, which accounts for about 40% of the world’s oil, if it were attacked.
And then there’s Libya, which is threatening to reduce oil production. According to Bloomberg, Shokri Ghanem, chairman of Libya’s National Oil Corporation said reductions may be made because of an over-supplied oil market, and in response to Iranian sanctions.
How Investors Can Profit From the Falling U.S. Dollar…
By buying domestic crude oil and alternative energy companies. Oil is going higher. Nothing is stopping the rise. The dollar is weakening. And inflationary pressures remain tight.
Making these companies even more attractive are the oil and gas discoveries and the fact that domestic explorations are more appealing given geopolitical tension.
Even the President agrees.
"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said.
To protect your portfolio from higher oil cost, diversify with domestic and alternative energy companies, like Royale Energy (ROYL), Marathon Oil (MRO), SandRidge (SD) and the many stocks recommended in Pure Energy Trader, The $20 Trillion Report, and GreenChipStocks.com.
Ian L. Cooper