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Just a few days ago, OPEC President Chakib Khelil told a French television station the awful truth that U.S. consumers don’t want to hear. “I foresee prices probably between $150 and $170 this summer,” Khelil said.
At the same time, Libya announced it may cut production because the market is “oversupplied.” Oil Minister Shokri Ghanem said: “We don’t see any need for more oil. There is plenty of oil in the market.”
Libya pumps about 1.71 million barrels per day (bpd) of oil, out of total OPEC output of 32.12 million bpd. That means Libya could easily take away the 300,000 barrels in new production that the Saudis promised just a week ago.
The Libyans, along with the rest of OPEC, want prices where they are now … or higher. Why? Because they want more money! The Energy Information Administration estimates that higher oil prices will hand OPEC $850 billion in net oil export revenue in 2008, a 26% increase from 2007.
That’s why, in the last year, our “good friends” in the Middle East — Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar — curbed their output by 544,000 barrels a day. At the same time, their domestic demand increased by 318,000 barrels a day, so their net exports dropped by 862,000 barrels.
It’s a simple supply/demand squeeze. So are prices going higher? Heck, yeah! How high can they go?
I think we could easily hit $200 a barrel early next year … and $250 by the end of 2009.
The pain at the pump is already wreaking havoc on the U.S. economy and markets. This month, the Dow Jones Industrial Average has hit its lowest levels since September 11, 2006. The Dow has plummeted 9.4% this month, its worst June since an 18% tumble in 1930 during the Great Depression. All 30 companies have posted losses in the month.
Well, if America’s economy is slumping that means gasoline demand will fall and prices will go lower, right? No! Every barrel we don’t use will be snapped up by eager NEW drivers in India and China. Heck, there are at least 6.6 million new car owners hitting the roads in China this year alone. And they’ll be using AT LEAST 45 million barrels of crude — more than enough to make up for the slim demand drop in the U.S.
This isn’t the first time I’ve predicted surging energy prices. In January, for example, I recommended a portfolio of stocks and funds in my oil report, Running on Fumes. Already, those stocks have gone ballistic, delivering rapid and robust gains to investors who followed my recommendations. |
Now add to this plummeting production in Mexico’s giant Cantarell oil field … civil war in oil-rich Nigeria … and other forces, and every indicator I study is still telling me that oil, gasoline and natural gas are headed for the moon … and key energy stocks are about to leave the oil bears licking their wounds.
The good news is you don’t have to sit back passively and watch events unfold. Indeed, you have a historic opportunity to go for windfall profits in the months ahead, as oil prices go to $170 … $200 … and higher.
I count no fewer than nine global triggers that are now turning this energy crisis into a full-fledged energy PANIC …
Energy Panic Trigger#1:
The Saudis couldn’t solve this
crisis if they wanted to …
and they do NOT want to!
Saudi Arabia is the biggest exporter of oil in the world, and it is the only OPEC producer with any significant spare production capacity. It’s also the #2 supplier of U.S. imported oil.
Problem: It supplies mostly the heavy oil that, regardless of any production increases, will have little impact on the market that matters the most for U.S. consumers.
I’m talking about gasoline, which is refined mostly from light crude: And light crude supplies are not only tight; the premiums over heavy crude are soaring to their highest levels of all time.
Most important: The Saudis aren’t motivated to pump enough oil to bring down prices even if they could! Why should they? They’re making money hand over fist — hauling in huge, historic profits — with each new surge in oil prices!
Energy Panic Trigger#2:
The higher oil prices climb,
the more America imports!
Sure, we’ve seen gasoline demand drop a tiny bit as energy prices rise — and some say that the drop in demand will drive prices lower.
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But the facts say something very different:
Look: In 1990, oil was at $23 a barrel. Today, it’s over $140 — a 509% increase.
If the oil bears were right, you’d expect U.S. oil imports to have dropped dramatically — right? But U.S. oil imports are up a staggering 70% since 1990 — even as oil doubled to over $50 per barrel … doubled again to over $100 per barrel … and are trending higher even now, even as oil prices are going ballistic!
Energy Panic Trigger #3:
Massive new oil demand from emerging
markets is now eclipsing U.S. demand!
Last Thursday, China roiled the oil market; announcing it would raise gas and diesel prices by about 46 cents per gallon in order to reduce demand. In a matter of minutes, oil prices skidded lower.
Before you knew it, America’s TV news and finance channels were all over the story. They asked the burning question, “Will higher prices and lower demand in China kill this great bull market in oil?” And they presented a seemingly endless parade of oil bears and stock bulls who almost unanimously proclaimed that oil prices were about to crater.
I hope those expert bears can live with disappointment, because by Friday morning, investors were buying the pullback like crazy and the oil price was already recovering nicely.
Why?
Well for one thing, savvy oil investors know that if anything, this price hike is likely to actually increase demand!
Look: If you were told gas prices were going up 18%, wouldn’t you run out and fill every gas tank you own to beat the price increase? And once prices jumped, wouldn’t you expect more price hikes in the future — and look for opportunities to buy sooner rather than later?
I sure would — and I’ll bet you dollars to donuts that millions of Chinese consumers will, too!
Plus, even if this modest price increase did cause some Chinese drivers to fill up less often, any reduction in demand would be dwarfed by the legions of new vehicles on Chinese assembly lines right now.
China will see AT LEAST 6.6 million new cars, trucks and vans hit their roads this year. And I’m not even counting scooters and motorcycles. Some estimates go as high as 10 million new vehicles hitting Chinese roads in 2008!
Last year, Chinese bought 5.5 million cars, minivans and SUVs plus 3 million commercial vehicles, up from just 1.6 million vehicles sold in 1997. This year alone, sales are expected to grow another 15% to 20%.
And that’s only the tip of the Chinese iceberg: A huge percentage of China’s oil demand comes from its massive manufacturing sector: Companies that make and sell trillions of dollars-worth of Chinese products to the rest of the world.
Since energy represents only a small fraction of most of these companies’ manufacturing costs, it’s highly unlikely that marginally higher prices will reduce their thirst for fuel one iota. In fact, the opposite is more likely the case. With the World Bank recently raising its forecast of Chinese GDP growth for 2008 to 9.8%, China’s industrial sector is likely to consume more fuel than projected this year!
The fact is, this year — 2008 — will be the first year that emerging markets will consume more oil than the U.S.
I’m talking about countries like China, India, Russia, and parts of the Middle East. According to the International Energy Agency (IEA), those countries are expected to consume 20.67 million barrels a day this year — more than the United States will.
China is the giant mover and shaker in the energy markets, as its gasoline and diesel demand has soared. But now, India is poised to zoom past China as the world’s fastest-growing car market, with sales of passenger cars in India increasing 12.17% to 1.5 million this past year!
The fact is, this is a massive, global, long-term mega-trend driven by soaring global demand and shrinking global supplies.
Energy Panic Trigger #4:
Production is cratering in not one, but
TWO major oil-exporting countries!
Mexico is our #3 source of imported oil — 1.2 million barrels per day (bpd), or 12.6% of our imports — and the decline in production from its super-giant Cantarell oil field can only be described as catastrophic.
Even as global demand for oil continued to explode last year, Mexico’s oil production fell 5.3% — and then fell faster in the first quarter of this year, by 7.8%.
And what’s worse, Mexico’s crude oil exports dropped even more sharply, down 12.5% to 1.49 million barrels per day in the first quarter!
Worst of all, Mexico’s production crisis is deepening: In April, Mexico’s oil output fell to a nine-year low of 2.8 million barrels a day, mostly because of a decline in the Cantarell field.
Think that’s scary? Consider this: At current rates of decline, Mexico will become a net oil importer by 2016, and maybe sooner, according to Mexico’s Energy Ministry!
And it’s not just Mexico. Venezuela, another big supplier of U.S. imported oil, is hemorrhaging oil production due to the slipshod management by its deluded president, Hugo Chavez.
Result: The combined net oil exports from Venezuela and Mexico to the U.S. dropped by 414,000 bpd in just five months recently: An astounding annual decline rate of 32% a year!
Energy Panic Trigger #5:
Meteorologists’ Red Alert:
Devastating hurricane season ahead
in the oil-rich Gulf of Mexico!
When La Ni
