Energy Prices Exploding!

Precisely when Wall Street was beginning to get used to the highest energy costs in history, theyve exploded even higher.

Just yesterday, crude oil surged to within striking distance of its all-time, post-Katrina highs …

Unleaded gasoline jumped 6 cents to the highest level in history …

Heating oil leaped 4.5 cents, also a new, all-time record, and …

The natural gas market went absolutely berserk!

Yesterday alone, natural gas was up 13 cents, one of the biggest single-day jumps of all time!

Natural gas reached $14.65, a full $2 higher than the already-high level it reached right after Katrina struck last month!

Natural gas has doubled in price just this year, a sneak preview of the kind of vertical rise now likely in virtually all energy sectors!

In response, energy stocks are rising, and energy stock options are going bonkers. One of the options Ive recommended has surged 50% in just three days. Another is up 48% in the same period.

This is what I told you would happen, and now its happening. But its not a flash in the pan. Heres why:

America Has Shot Itself
in the Foot Twice

Our backs are up against the wall.

Its not just the damage that Hurricanes Katrina and Rita wreaked on our energy infrastructure. In fact, over the long haul and in the big scheme of things, the energy damage in the Gulf is relatively small.

The real problem stems from the fact that weve shot ourselves in the foot twice.

First, we fell asleep at the wheel in the late 1990s when energy prices were cheap. We failed to invest in new refineries, new production techniques, new exploration technologies, and alternative energy.

Second, a few months ago we made an equally big blunder: When the Chinese government tried to buy Unocal, we should have sat down with them and worked jointly toward solving both countries massive energy needs. Instead, we sent them packing.

Mark my words: This is going to come back and haunt us, in spades.

In the last two years, Beijing has moved to start up or acquire oil and gas projects in over a dozen different countries around the world.

And now, since they lost the Unocal deal, theyre moving even more aggressively. Some examples:

China’s now building a new, private pipeline to import oil from Russia. Scheduled to start operation next year, the $64 million joint Sino-Russian project will include two railway unloading fields, two oil transfer stations and four pipelines running beneath the Heilongjiang River.
China National Petroleum Corp. (CNPC), Chinas largest state-owned oil company, is bidding $4.2 billion for Canadas PetroKazakhstan giving it access to 12% of the companys 550 million barrels of reserves.
Earlier this month, CNPC won a bid to purchase EnCana’s oil and pipeline interests in Ecuador for $1.4 billion. As a result, China has another foothold in South America and in a major Canadian company.
China has made recent additional investments in oil and gas interests in Argentina, Mexico, Venezuela, Brazil, Ecuador, Iran, Thailand, Vietnam, Angola, and more.

And now comes what could be the biggest deal of all …

Just yesterday, China announced its going to work jointly with India to explore and develop oil in the Indian Ocean PLUS, jointly go on a shopping spree around the world to secure energy supplies for both countries.

Think that through for a minute: These are the two most populated countries in the world, with a combined population of 2.4 billion, more than one third the worlds total.

And unfortunately, neither government will give a hoot if they start buying oil companies that wind up cutting the U.S. out of the loop.

We left them no choice. When they came our way, we closed the door. As a result, our future energy security is now more threatened than ever before.

Maybe Im just getting too pessimistic in my old age. But this scares me. Have we set the stage for a global oil war down the road? I hope not. No matter what, right now …

Proof That the Oil-Price
Rise is Accelerating!

Take a look at the unusually powerful pattern in the rising price of oil:

Between the beginning of 2002 and September 2003, the price of crude oil rose at an average pace of about 25.7% per year.

From September 2003 to October 2004, its rise accelerated to 48.8% per year.

And now, in the most recent period, its up at an annual pace of 56.5%.

This is a solid, accelerating trend thats typical of long-lasting booms driven by powerful and largely unstoppable fundamental forces.

Although some sideways trading and some corrections are always possible, this acceleration points to $100 oil by as soon as early next year!

Most Energy Shares Will
Take off Like a Rocket.
But Not All of Them.

Right now, for example, you dont want to be heavily invested in oil and gas companies that have a majority of their operations in the Gulf of Mexico. Theyre not producing oil and theyre going to incur billions of dollars of repair expense. Bad combination.

Instead, you want to be in international oil companies that have little or no exposure to the Gulf, that can step up to the plate to pump up more oil immediately, and that can fill the gaps caused by the lack of production in the Gulf. Thats a winner.

Another good play: Stocks that are helping Gulf oil and gas companies to rebuild and repair their operations.

Recommendation: Oil States International (OIS). This company rebuilds drills, pipelines, and other undersea operations. And with all the repair and reconstruction contracts its getting, its going to make out like a bandit.

You can buy 500 shares, for about $16,500 and hang on to them. Or, you can do what I recommended to my Energy Options Alert subscribers: Buy the options … have the opportunity to control the same 500 shares for only about $1,200 and get all the upside potential, but with strictly limited risk on the downside.

One option we chose on this company has gone from $1.80 to $2.70 in just the last three trading days. Thats a gain of 50%. Another is up 48% in the last two days.

You CAN lose money with options. So theyre not for everyone. But the beauty of options is that when you buy them, you can never lose a penny more than you invest. On the flip side, you get virtually unlimited profit potential.

Subscribers to my Energy Options Alert have now received 11 recommendations that have been closed out so far, with 9 winners and 2 losers. Thats an 82% win rate. We estimate that the biggest loser is 38%, while the winners have ranged from 40% to 161%.

I think were just warming up. So if you have money you can afford to risk, call Cheryl at 877-719-3477 for details. Just bear in mind that Im now down to only 212 available slots before the service is closed to new members. And with all thats happening now, theyre going to sell out within days.

Copper Also Blasting off!

Question: If the economy is starting to slip, which it may very well be, why has the price of copper gone ballistic, surging past $1.70 per pound?

Another question: If real estate markets are starting to soften, which I have no doubt they are, why is copper at all-time highs? My answers:

First, I think were beginning to see a divergence between economic growth and virtually all natural resources. Remember, natural resources come in finite supplies. Paper money does not.

So, central banks can often print as much money as they want, prime the inflation pumps, and dollar-for-dollar, not get as much economic growth as they would like.

But natural resources are constantly being drained away from Mother Earth. This is especially true as a rapid population growth and nearly instant modernization in emerging nations puts great demand on virtually all natural resources.

Second, Chinas copper imports soared 19% in August, to over 126,000 metric tons. Indias imports soared 12%, also in August. Both are huge increases.

Third, when the housing market cools, you can expect homeowners and landlords to spend more on repairs of existing properties. So the diminished demand for copper installations in new homes will be offset to a large degree by increased demand for copper in existing homes.

Fourth, surprisingly large quantities of copper will be needed to rebuild the Gulf states, a massive project that has barely begun.

Copper prices are already reflecting most of these pressures and will continue to do so for months to come.

Recommendation: Buy BHP Billiton (BHP – NYSE), one of the worlds largest copper producers and a diversified natural resource company.

Massive Break-Out in Gold!
Next: $500 and Beyond!

It would be a sin to leave you today without covering the most exciting break-out in gold since the metal began its long surge to $800-plus in the late 1970s.

For the last several months, gold was flip-flopping within a tight trading range between about $420 and $460. Now it has broken out, and if that break holds, as I expect it will, the yellow metal could easily run up beyond $500 an ounce within a few short months.

My target: $540!

Your first sign that $500 and $540 are on the way: When gold closes above $479. Thats the level to watch, and Ill keep you posted every step of the way.

But this is not just about gold alone. When gold takes off, its also a telltale sign that the Fed is printing up money like mad … that inflation is going to accelerate sharply higher and that there could be a serious debt default coming in the worlds financial system.

I cant tell you exactly where. No one can. But it could be among highly leveraged investors who have overplayed and overstayed their sinking bond market positions. It could be big hedge funds that have been going short the energy futures or used other high-risk derivatives. Or it could be large players in real estate derivatives.

Each of these sectors is reaching a flash point, where a blow-out could take place at almost any time. Gold markets know that; gold markets anticipate it … which leads me to …

My final recommendation today: I believe everyone should own some gold bullion either physically or through a gold exchange-traded fund like GLD. Plus, you should hold solid, blue chip gold mining companies such as Newmont (NEM), among others.

Plus, always keep plenty of cash in reserve for safety and for major, new opportunities now popping in virtually every natural resource imaginable.

Best wishes for your health and wealth,

Larry Edelson
Editor, Real Wealth Report
Energy Options Alert

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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