Once every ten to fifteen years, there is a major oil discovery or geopolitical shift that causes earthquakes in the global financial structure.
Tectonic plates shift and a new paradigm is born.
In the process, many people get rich.
During the 1970s, BP found oil in the North Sea off the coast of Scotland. The stock jumped from $3.43 to $30.
When the Soviet Union collapsed, companies like Rosneft, Lukoil, and Gazprom went from being traded for scraps of government paper to over $200 a share, in the case of Rosneft.
PetroKazakhstan (PKZ), which has since been bought out by the Chinese, went from $0.25 in 2001 to $55.00 in 2005 — a massive return by anyone’s standards.
Petrobras (PBR) went from $2 to $65 after it found massive oil in the offshore Tupi fields:
The easiest way to make money — in terms of time spent versus cash returned — is to research and buy oil exploration and development stocks.
When a company finds oil, the share price absolutely explodes to the upside.
Iran Wants a Bomb
There are a number of geopolitical time bombs that could triple the price of oil.
One of these is the EU oil embargo.
According to the Wall Street Journal:
European Union foreign ministers agreed Monday to impose an oil-import embargo on Iran and an asset freeze on the country’s central bank, escalating the confrontation over Tehran’s nuclear program.
The embargo bans the importation of petroleum and crude oil products from Iran, as well as insurance on such products. It goes into effect as of July 1 on existing contracts.
When Iran seized the hostages and Carter put on an oil embargo in November of 1979, the price of oil went from $14.50 a barrel to $38.
A similar jump today would equate to an oil price of $262/barrel.
In response to this embargo, a senior Iranian official said Iran would “definitely” close the Strait of Hormuz if an EU oil embargo disrupted the export of crude oil.
As I write this, the United States, UK, and France are all sending warships through the Straits.
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Iran is experiencing severe currency devaluation as well as inflation and basic material shortages. If the country can’t export oil, it will likely trip over into chaos.
There is a reasonable chance that the theocratic leaders will go to war in a nationalist bid to solidify their grip on power. They have a long history of such actions.
With this backdrop, China has distanced itself from Iran, a traditional supplier of oil, to seek supplies elsewhere; India — which gets 12% of its oil from Iran — has stepped in and is now trading gold for Iranian oil. This avoids the U.S. sanctions and undercuts the global dollar/oil price relationship.
India and China have an unquenchable thirst for energy.
India’s oil demand will increase by 25% over the next four years — all of which and more will be imported, as India’s own production is shrinking.
China is now the largest consumer of hydrocarbons in the world and its oil appetite it accelerating. Oil imports are expected to be up 5.6% this year, up from a 3.8% increase in 2011.
All of this big-picture stuff leads us back to the small picture and making money.
Over the past year, I put my Crisis & Opportunity readers into a series of oil exploration companies…
These companies all had three things in common: They were cheap, no one would touch them, and they were sitting on massive-potential oil finds.
Who’s Laughing Now?
I’ve been buying up small microcap oil exploration companies for about 10 months now.
I’m not going to give away all of my picks, but all the charts look basically like this one:
Cove Energy (COV.L) is sitting on a record find of hydrocarbons.
It is close enough to sell this energy to Asia. There is currently a bidding war between Oil India (OINL) and a Thai petroleum company (PTTTEP) for Cove’s assets. Those are the two that have been made public. It would not surprise me to see a company like Sinopec (SHI) or China Petroleum (SNP) win out.
As I said, I’m sitting on about five of these stocks.
Their share prices are moving up rapidly and won’t be undervalued much longer…
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All the best,
Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.