Oil Headed to $100-$110 Near-Term

Written By Brian Hicks

Posted April 5, 2010

Gone are the days of cheap oil.

Gone are the good ol’ days when it cost $10 to fill up my old Chevy Malibu… only to be replaced by an era of $3+ pump prices across a country ravaged by depress — er, recession.

And we’re all left to wonder if the days of triple-digit oil, damning the petrol gods that be, and flipping off gas station attendants may be returning… 

And They Just Might… Near-term, at Least

Let me be clear: I’m not talking about $147 oil — not yet, anyway.

That will come later, on peak oil theory and an expected rebound in the global economy.

For the time being, we’re only talking about $100 to $110 oil — by late May/early June — that will send gas station prices well above $3. It certainly won’t be something to cheer about, but it would only be temporary this year, coinciding with peak summer demand.

But Goldman Sachs believes that crude shortages will re-emerge as supply fails to keep up with demand recovery; that higher demand could drive oil to the $92 to $97 range within the next three to six months.

Can $100 Reality Be Far Behind?

Two big banks are joining that $100-prediction crowd, telling clients to brace for it. 

Barclays, for one, expects crude to “flirt with $100 this year,” anticipating an average price of about $140 by 2015. (I’m sure consumers will love filling up their tanks at prices like those.)

Analysts at Bank of America see oil nailing $105 this year, and believe that $150 isn’t far behind — a possible reality by 2014 — thanks in part to increased demand from China and India; China recently overtook the U.S. car market, and India has billions of people waiting to buy cars.

And then we have the IEA and EIA projecting stronger demand for oil in the near term.

Others anticipate that a global economic recovery and tightening refinery supplies will push up prices, too, ahead of U.S. summer driving season. Saudi Aramco, for one, already upped its selling prices for all crude grades for U.S. customers in April.

And then we have a U.S. refinery industry that’s running at 80% capacity recently “in an attempt to drain global supplies and push the price of refined product higher,” according to a CNBC report.  “As a result, we’re very vulnerable to outages, or like we’re seeing right now with the strike in France, that’s going to spark [this rally].”

So long as there’s recovery speculation, any damp demand will recover — resulting in higher prices and higher demand. And let’s not overlook the potential for conflict around the globe that could flare up at any time, disrupting oil supply. 

What if Israel hit Iran? Iran might choke the Strait of Hormuz, for example… and up goes oil.

But for How Long Would $100 Oil Stick Around?

How long can those oil costs last, as the economy still faces considerable consumer and economic head winds? At $100 to $110 oil, you’re talking about $3.50 at the gas pump, which would put a crimp in our “recovery” and lead to demand erosion. 

We’re also talking about the 17% of America that is still under-employed or unemployed; another five million people falling behind on mortgages; the lingering effects of the global credit crunch; and a general uncertainty over the withdrawal of government support.

And while the jobs number may be seen as an economic positive, break it down and it’s not as peachy a scenario as one might think…

But so long as there the perception of a recovery exists, oil prices will continue the upside.

We’re sticking with our $100 to $110 prediction on that. We’ll worry about profiting from demand erosion later.

And we’re not alone with our $100 oil predictions — or the prediction of a quick pullback once we hit that $100 psychological threshold. 

And we’re prepared for both.

For Now, We’re Preparing Your Portfolio for What’s to Come

You should prepare yourself mentally for $3 pump prices… and you should prepare your portfolio for what’s on the horizon. 

That’s one of the reasons we created the latest Pure Asset Trader Challenge.  

A year and a half ago, Pure Asset Trader put its money and reputation on the line by offering a select group of investors a Challenge they’d find nowhere else in the world.

Simply put, we promised to deliver 20 double-digit investment gains over the course of one calendar year, or we’d fork over $1,500 to each person who took us on. And guess what? We didn’t have to write a single check.

(This is the same group of guys who crushed the last 20 double-digit winners during last year’s Challenge… nailed a 40-for-40 win streak… and is now on a 50-for-52 win streak.)

In fact, if you’re on the fence about joining us, here’s a taste of what’s to come…

Trade #1 (Higher Risk): Interoil (NYSE: IOC)

This is one of “those” stocks that can’t be ignored.

We’ve been buying IOC since it cost $20/share. It’s now just below $70. And we believe that despite recent short attacks, this could be a $100 stock.

But that’s not to say you should risk the house here. It’s still a risky trade because of short attacks, which have attacked this company repeatedly.

Technically, though, IOC could easily pop higher. Most of the short-term moving averages increased after the short sell-off.  MACD and stochastic are showing positive moves north; RSI could easily start to get bullish here. On top of all of that, a long-legged doji showed up on the chart — after the short attack.

I say screw the shorts… And if recent rumors of a deal are true, this stock could easily rocket higher.

Check out page 2 of this report for more information, in the article called “InterOil may have Japanese partner in PNG.” 

Don’t bet the house, though…

Trade #2: Brigham Exploration (NASDAQ: BEXP)

This is one of my favorite domestic oil stocks in the Bakken region. Over the last year or so, Pure Asset Trader has banked 50%, 117%, 37%, 152%, 40%, and 32%… and we see even further upside this time around.

If oil shoots to $100, we could easily see $23 on Brigham.

They’ve already announced that their Williston 25-36 well in the Bakken shale produced about 3,394 barrels of oil equivalent per day. And they just announced this news.

Upside is unlimited with Brigham.

Trade #3: Cree Inc. (NASDAQ: CREE)

We first recommended Cree at $18 a share.  It now stands at $70.  But we think it’s going to $100.

Even now, the Street fails to see a growth stock in a growth industry expected to grow exponentially over the next five years.  If demand continues to grow beyond 2012 — as expected — how can you pass up this stock?

You can’t.

Cree is in an industry that’s just beginning to skyrocket. LEDs are the future. We’re talking about a market with 388% growth potential; a market expected to far exceed $1 billion by 2011, dwarfing the 2005 market value of $205 million.

Even President Obama is getting behind the technology, saying one of the most important steps is to set new efficiency standards on fluorescent and incandescent lighting:

Now I know light bulbs may not seem sexy, but this simple action holds enormous promise because 7 percent of all the energy consumed in America is used to light our homes and our businesses…

Between 2012 and 2042, these new standards will save consumers up to $4 billion a year, conserve enough electricity to power every home in America for 10 months, reduce emissions equal to the amount produced by 166 million cars each year, and eliminate the need for as many as 14 coal-fired power plants…

And by the way, we’re going to start here at the White House. Secretary Chu has already started to take a look at our light bulbs, and we’re going to see what we need to replace them with energy-efficient light bulbs.

Why anyone would be foolish enough to ignore a growth stock in a growth industry is beyond me… particularly growth stocks with billion-dollar potential.

So while we brace ourselves for an expensive summer in terms of oil, there are ways to pad your portfolio to counter the onslaught of increasing oil prices. I’ve given you three today. There are many more. Stick with us and we’ll keep you informed and prepared for the turns the market will take in the coming months.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

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