When Hurricane Dennis barreled right up the middle of the Gulf of Mexico, it tore the legs out from under British Petroleums Thunder Horse platform, the largest platform in the world.
Now, Emily is about to churn its way across the Gulf, threatening to inflict similar damage to oil facilities, many of which have yet to fully recover from last years Hurricane Ivan.
Geologists and oil experts are concerned that oil could spike to as high as $70 or even $80 in a matter of days!
Theyre right.
Remember: Almost the ENTIRE oil-price rise youve seen so far has been driven by rising demand. Now, this would be the first time since the 1980s that the market is struck by major, devastating disruptions to supply.
Oil shares will skyrocket, and investors who trade this market will reap tremendous profits.
Thats why Larry and I decided to create the Energy Windfall Trader, which Larry edits. We wanted to provide our readers with a service thats dedicated to harvesting the profits available in situations like this profit opportunities that go far beyond bad weather. Click here for Larrys latest report on the stocks hes targeting.
Oil and Gas Demand Still
Rising Despite Higher Prices
Yesterdays New York Times brings home the same points Larry and I have been making about this situation all along. The fundamental problem, according to the Times:
Americans depend almost exclusively on relatively large and heavy private vehicles, virtually all of them running on gasoline, for crucial daily tasks like getting to work and taking their children to school …
Because of this high dependence on private cars, the United States continues to use oil considerably less efficiently than any other rich industrial country. Yet most of the proposed policy remedies are meant only to subsidize the production of oil, not use less of it.
Despite the lessons of the past, the United States remains particularly vulnerable to a decision by a crucial supplier for example, the anti-American government of Venezuela to cut its oil exports, as Saudi Arabia and other Arab nations did in 1973.
Even more critically, Americans can no longer count on abundant supplies of cheap fossil fuels, because developing nations like China and India are emerging as major competitors for resources. This is occurring just as global oil production may be hitting a plateau. …
Worldwide output, now about 80 million barrels a day, may fall short of the 100 million barrels a day that energy officials are counting on reaching within the next decade …
Oil prices fell after previous shocks because recessions reduced demand. This time around, galloping consumption has left many authorities believing that the world may face a long period of high prices and tight supplies.
A message of the late 1970’s is we must prepare for the day of reckoning, the transition away from oil, said Mr. Schlesinger, who also served under President Richard M. Nixon as defense secretary and director of the Central Intelligence Agency. But it did not happen then, he said, and I doubt we’re going to do it now.
Seven Reasons Higher Oil
Prices Are Virtually Inevitable
The Times pulls no punches. It succinctly lays out powerful reasons why oil is going up:
Reason #1. Our transportation sector now represents TWO-THIRDS of ALL oil demand in the United States.
Reason #2. America currently has a fleet of more than 200 million cars, guzzling 11 percent of the daily oil output of the ENTIRE WORLD.
Reason #3. Gasoline consumption has risen 35 percent since 1973, compared with a 19 percent increase in overall crude oil consumption.
Reason #4. The growth comes mainly from light trucks, including sport utility vehicles, which account for almost half of all cars sold in the United States.
Reason #5. Americans are NOT giving up their SUVs! Despite some sales declines, there has been no shift to fuel-efficient cars thats even vaguely similar to the one we saw in the 1970s.
Reason #6. Major oil companies are quickly running out of places to invest for new supplies of oil because most of the world’s reserves are in countries that are wary of foreign investors … or theyre shut off to American companies because of war.
Reason #7. In response to the oil shocks of the 1970s, the government took firm action to boost supplies and conserve energy. This time around, the new energy bill coming out of Congress does nothing of the kind. Even the bills supporters admit this sorry state of affairs.
Bottom line: We dont even HAVE an oil shock yet. All the price increases youve seen so far have been driven by demand. So the oil surge to $60-plus is just a sneak preview to the price surges you can expect when supplies are disrupted.
Most people think the primary financial impact of terror attacks is an immediate plunge in markets.
Not true. The knee-jerk reaction of financial markets is typically reversed in subsequent trading. The far more significant impact is long term on the economy, foreign policy and … on the production of key commodities, like oil.
Consider the events of last week: Early on, the attack sent the stock market reeling, with the Dow Industrial Average Futures spiraling down 200 points even before the market opened.
But the selling was promptly muted. European markets quickly recouped half their losses. American markets even closed higher at the end of the day, and have been mostly rising ever since.
The reason: Traders dont see a small scale attack on public transport as a major geo-political event that will slow growth. Ditto for the Madrid bombing, and even the September 11th attacks.
But, fast forward four years from 9/11 and look at the deep, structural changes that have overtaken the world as we know it today:
- We are fighting three wars two in Asia and one on terror worldwide. At the same time, we are not allocating adequate resources to fighting acute and chronic energy shortages.
- There are now NEW threats of terrorist attacks on oil pipelines.
- Three major airlines are bankrupt. Two more are on the brink.
- Our federal budget deficit may be improving temporarily because of a surge in tax receipts. But our trade deficit is the worst in history.
Meanwhile, in London, some researches are cautioning that the indirect economic effects of terrorism may be significantly more than traders realize. According to the Organization for Economic Cooperation and Development (OECD), you can expect …
- $32 billion in losses for business interruption, workers compensation, loss of life and other liabilities
- An estimated $28 billion loss of just pure physical assets
- New security measures resulting from the threat of terrorism adding 1% to 3% to the cost of international trade, reducing productivity and even forcing some companies to fold
- Increased spending on military and security cutting GDP by .07% over five years
Nouriel Roubini, associate professor at New Yorks Universities Stern School of Business, points to Israel where the Palestinian conflict has been at a boiling point since 2000.
Result: Tourism collapsed, the stock market went into a long slump and the country sank into a painful economic recession that is still not over.
Harvard economist Alberto Abadie and a Spanish colleague have found in a study that just the perceived risk of a terrorist attack can have a substantial effect by reducing direct foreign investment. A sharp rise in the terrorism risk can reduce foreign direct investment by 5%.
And unfortunately, the war on terrorism shows no signs of abating any time soon. Its going to continue to be a part of the financial equation for a long time to come.
So prioritize safety and security both for your money and your family.
Best wishes,
Martin Weiss,
Larry Edelson and
Scot Galvin
About MONEY AND MARKETS
MONEY AND MARKETS is written by the editors and financial analysts at Weiss Research. To avoid any conflict of interest, our editors and research staff do not hold positions in companies recommended in MAM. Nor does MAM and its staff accept any compensation whatsoever for such recommendations. Unless otherwise stated, the graphs, forecasts, and indices published in MAM are originally developed and researched by the staff of MAM based upon data whose accuracy is deemed reliable but not guaranteed. Any and all performance returns cited must be considered hypothetical. Contributors: Marie Albin, John Burke, Michael Burnick, Beth Cain, Amber Dakar, David Dutkewych, Larry Edelson, Scot Galvin, Michael Larson, Monica Lewman-Garcia, Anthony Sagami, Julie Trudeau, Martin Weiss.
2005 by Weiss Research, Inc. All rights reserved.
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