Wall Street fat cats laughed out loud in 2001 when I predicted that oil which was selling for as low as $10 per barrel was destined to go to $60.
I begged, even pleaded with anyone whod listen to fill their portfolios with shares of select energy companies, telling them that these stocks would double and triple in the years ahead. They laughed again.
But Wall Street stopped laughing when oil prices doubled to $20 a barrel … doubled again to over $40 … and then soared to more than $60!
Now, Im about to reveal why this great oil boom has only just begun … why Im convinced that oil prices are about to soar yet again … and why I want you to make sure you have my top core recommendations for your energy portfolio.
There Are More Reasons to Be Bullish
On Energy Stocks Now Than Ever Before
I see the price of oil (and gas) heading much higher for at least seven powerful reasons …
Reason #1
One Word, Five Letters: C-h-i-n-a
Unlike many analysts who choose to pontificate from the ivory towers of Wall Street, I personally travel the worlds natural resource investment hotspots regularly to see whats happening with my own eyes, and on my own dime.
On a recent trip behind the Great Wall, I had the very rare privilege of meeting privately with one of the top banking officials in China.
I learned, first hand, how the Chinese government is managing the countrys banking problems: What they plan on doing with the countrys currency, the yuan … and most importantly, the inside skinny on the countrys energy needs.
Look. Since 1979, China has opened its economy, gradually privatizing state owned enterprises … establishing Special Economic Zones with tax incentives to attract foreign investment … lifting price controls … and abolishing credit quotas in the banking sector.
As a result, Chinas economy has been growing three times faster than ours for years!
So far, 224 million Chinese peasants have descended upon the cities and taken jobs, creating the most explosive increases in per-capita income the world has ever known.
Plus, this mass migration is just getting started: Chinas young economy is still only 36 percent urbanized and it already consumes a third of the worlds steel … scarfs down half of the worlds cement … and guzzles the most oil in the world after the United States.
But Chinas capitalist economy continues to accelerate like a jet-fueled dragster and the urbanization rate is expected to climb from 36% to 60% as early as 2025.
According to government estimates, over 600 million new capitalists will pour into Chinas 660 cities over the next 20 years. Thousands more secondary cities will spring up out of smaller villages.
Do you have any idea what that means for energy demand as the standard of living continues to rise? You will see …
Hundreds of millions of more Chinese entering the modern world for the first time …
Each placing enormous new demands on the worlds natural resources, particularly precious supplies of energy and oil.
Hundreds of thousands of new factories and other businesses … thousands of new government buildings … and millions of new apartment, condominium complexes and private homes.
If you dont believe me, I urge you to take a trip to Shanghai, or Beijing, or Canton, or any one of the major cities in China. The experience will knock your socks off.
Moreover, China has already trumped the U.S. in terms of its consumption of common household items like TV sets, refrigerators and air conditioners.
There are now more cell phones in China than there are people in the United States. And yet so far, cell phone ownership in China is just 24%!
China is Going Car Crazy!
There are currently less than 30 million cars on Chinese roads, scarcely 1.6 cars for every 1,000 citizens only about 13% as many as we have on American roads.
But more than 22,000 new cars are hitting the Chinese pavement every day of the year.
This kind of explosive demand from a nation of 1.3 billion people can only mean one thing: An explosive demand for energy and energy prices, driving oil, gas and alternative energy stocks higher for years to come.
Reason #2
Five More Letters: I-N-D-I-A
China has a huge competitor in its race into the 21st Century: India, with one billion citizens.
Thats more than three times as many consumers as in the U.S. and Indias economy is growing more than twice as fast as ours.
The most recent analysis by The Economists Intelligence Unit projects that the Indian economy, which grew at the blistering pace of 7.3% in 2005, will grow again at more than double the rate of the U.S. in 2006-2007.
Like China, India is experiencing a dramatic rebirth as a thriving, vital society, with massive urbanization already underway, and explosive new demands for consumer goods of all kinds.
Small-car sales are zipping along at a 17% growth rate. The ballooning Indian middle class larger than the entire U.S. population, with 330 million strong and growing is gorging itself on consumer goods not just cars and appliances, but air travel.
Last year, the state-owned domestic carrier Indian Airlines inked a $2.3 billion deal to replace its entire fleet in one sweep, ordering 43 new jets from Europes Airbus. Reason: The number of airline passengers is projected to more than triple over the next five years from 14 million to around 50 million.
With all this surging domestic demand, another major industry in India is also poised for massive expansion: STEEL.
Steel makers are hopping to keep up with the construction boom for highways, bridges, and hotels.
Theyre racing to feed enough steel for superbooms in cities like Calcutta, New Delhi, Mumbai (Bombay), and Bangalore. And the pace promises to quicken as India pumps $15 billion into overhauling its infrastructure over the next few years.
Meanwhile, a staggering 71% of the Indian population nearly 800 million people has yet to enter the modern economy.
As these teaming masses of new consumers are assimilated into the 21st century, the demands theyll place on the worlds fragile energy supply boggles the imagination.
Reason #3
Skyrocketing Demand Is
Only HALF the Story
While demand for energy is destined to continue skyrocketing for years to come, the Earths supplies are running dangerously low.
Industry experts estimate there are only about 1 trillion barrels of oil left in the ground. Of that, 45% just 450 billion barrels are believed to be of the quality needed to be efficiently refined into gasoline.
The vast majority of Middle-Eastern oil is too high in sulfur, for example and much of the low-grade Russian shale oil is so hard and tar-like, you could build a house out of the stuff.
Even without the inevitable consumption explosion Ive told you about, the world is scheduled to run out of all known oil reserves in about 35 years.
The worlds oil fields are pumping at nearly 100% of their capacity: The Organization of Petroleum Exporting Countries (OPEC) has hit its limit to produce light, sweet crude the preferred grade of oil used to make gasoline. And this week, in Vienna, OPEC members decided to continue pumping flat out.
Meanwhile, oil transport companies are maxed out: The worlds pipelines and tanker fleets are moving every drop they can find from oilfields and refineries, and those transportation costs are spiraling out of control up roughly 500% in the last five years.
Oil refineries here in the U.S. and abroad have hit the wall: Already industry experts expect global supply to exceed global demand by a staggering 1 billion barrels a day.
Additionally, many of the worlds oilfields and pipelines are in politically unstable regions, with some frequently destroyed by violent attacks.
As a result, there are less than 2,500 rigs drilling for new oil in the world today, less than half as many as there were in 1981.
A bad situation? Absolutely. Higher oil prices? I believe its a virtual certainty.
Reason #4
65% of Global Oil Reserves
Are Now Under Siege
I dont have to tell you that geopolitical tensions are huge and growing.
The War on Terror … the allied occupation of Iraq … and a Middle East peace process thats been killed by the rise of Hamas … are all destabilizing the oil markets globally.
Meanwhile, the cultural disconnect between the radical Islam and the Western world is widening dramatically.
Indeed, a major revolution is sweeping the Muslim world, and Wall Street is largely ignoring it. They seem to forget that the same lands that are being rocked by violence are also the ground harboring the worlds largest reserves of crude oil.
The Persian Gulf countries, where most of the worlds oil reserves are concentrated, are especially vulnerable:
- Iran is on a collision course with the West over its nuclear program. And just yesterday, the U.S. officials declared they are going to seek travel restrictions and financial sanctions against Iran.
- Saudi Arabias oil facilities, the largest in the world, are being attacked by terrorists. And …
- Nearly all oil production in the region could be in jeopardy if Iraq plunges into civil war.
We see the same pattern in Nigeria, one of Americas largest oil suppliers. We see it happening in Ecuador and Venezuela. Everywhere, revolutionaries and terrorists are transforming oil into their economic weapon of choice.
None of these hot spots are going away soon. And all this is very bad news for anyone whos still praying for cheap oil.
Reason #5
Declining Value of the U.S. Dollar
Oil, gas and other major forms of energy are traded internationally in terms of the U.S. 
dollar. So if the value of the U.S. dollar falls against other currencies, the value of the oil must rise proportionally.
For example, if the value of the U.S. dollar falls 10% and theres no change in the supply/demand picture for oil then the price of oil must rise about 10%.
It may happen at the same time or with some delay. But no matter what, the value of the U.S. dollar and oil ultimately are entwined together, much like the dollar is with the price of gold.
Thats why many OPEC nations especially Iran are now seeking to price their oil in terms of other currencies like the euro. OPEC nations are suffering the effects of inflation the loss in purchasing power of the greenback. So they are starting to look at other currencies to use for trading oil.
I dont think thats going to happen overnight. But I do think the U.S. is headed lower longer-term, due to the budget and trade deficits, the war on terror, and more. A declining dollar will put additional upside pressure on the price of oil and energy.
Reason #6
Avian Flu
Not many are talking about this. In fact, I have yet to find one analyst who has done his homework on the avian flu. But let history speak for itself on this one: During the Great Pandemic of 1918, energy prices went through the roof.
The price of coal, the major source of energy at that time, was $2.57 per ton. By the time the world was beginning to recover from the 1918 Pandemic, the price had risen 179% to $7.18 a ton in just 2 years
The reasons were simple: Worker absenteeism and quarantines negatively impacted productivity in the mining industry. At the same time, hoarding of coal put excessive demand on available, above-ground supplies. The upside pressure on coal prices was enormous.
The same scenario could occur today in the oil and energy markets when the pandemic hits. If you dont think so, just hearken back to last years hurricanes, which sent prices soaring. Only the avian flu pandemic, unfortunately, would last longer than any hurricane.
Reason #7
Oil Shares Are Dirt Cheap
Which would you rather buy …
A) A company that can earn back your investment in 10 years or less, or …
B) A company that would take 20 years for you to make your investment back
The answer is obvious. Now, my second question. Which asset would you rather buy…
C) An asset thats selling for pennies on the dollar, or…
D) An asset thats selling for more than its worth.
Again, the answer is obvious.
My third and final question: Is there anywhere you can find companies that are earning back the cost of their investment and where their assets are valued at a discount to their market value?
Theres only one place I know: The oil industry.
Many oil companies today even though theyve doubled and tripled already are trading as low as 6 times earnings, and are sitting on oil reserves that are valued at just fractions of what theyre worth on the open market.
That, combined with all the major reasons I gave you above, is why I love energy stocks right now. To me, they are a no-brainer. Every portfolio under the sun should have long-term core holdings in energy.
Make Your Moves Now …
Right now, if you havent already done so, you have a window of opportunity to buy oil shares, before they take off again.
Oil shares are trading lower in a temporary correction.
Like all other corrections in the oil and energy share market, I dont think the current dip will last long. Before you know it, I expect to see the price of oil and energy shares will be rocketing higher again.
Heres what Im looking at to recommend for core long-term holdings:
First, consider Edge Petroleum (EPEX) and Weatherford International (WFT). Both are top-notch, mid-sized energy companies with loads of upside potential. Use a protective sell stop 15% below your purchase price to help reduce downside risk.
Second, consider the Select SPDR Energy ETF (XLE), an exchange- traded fund, largely comprised of the top 10 oil and gas companies in the world, with names like Exxon Mobil, Chevron, etc. Also use a protective sell stop 15% below your purchase price.
Third, reserve your copies of my special reports The Next BIG-OIL Takeover Targets and Alternative Energy Breakout! With these reports, youll be on the cutting edge of the takeover wave in the oil industry. AND youll be in the forefront of the new push forward for alternative energy.
Later this month, Ill be advertising them on a dozen or so public websites with a retail value of $79.95 each, or $159.90 for both.
But for just $99, both reports are yours free simply by starting or renewing your subscription to my Real Wealth Report for one year. Call 800-604-3649.
Fourth, if youd like to see high double- and triple-digit gains in as little as a few months, rather than years, also consider high-leverage, high-profit potential, but strictly limited-risk options. For more information, call 877-719-3477, or click here.
Best wishes,
Larry
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 Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2006 by Weiss Research, Inc. All rights reserved.
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