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The Great Oil Shock will not be a video replay of the Arab oil embargo of 1973, when crude prices doubled almost overnight and when millions of American motorists waited long hours on gas lines. Nor will it be a repeat of 1979-80, when the Iranian revolution and the Iran-Iraq war drove oil prices to the equivalent of $80 per barrel in todays dollars. In both those situations, the oil crisis was triggered by a single country or a singular event, largely under the control of one decision-making body. And in both cases, the world had abundant excesses in oil capacity to help bring prices back down. Why Todays Oil Crisis Rather than just one hot spot threatening the worlds oil supplies, I count nearly a dozen. Rather than just one direct confrontation that can be resolved with smart diplomacy, we face a multiplex of crisscrossing conflicts that defy resolution. And consequently, rather than a quick spike in oil prices followed by an equally rapid decline, oil is likely to continue rising, with a series of repercussions that could turn the financial world upside down:
This is not just about forecasts hidden beyond a future horizon. Quite to the contrary … Most of the Repercussions Even before the next energy price explosion ….
Just this past Friday, the price of crude oil rose to within a couple of dollars of its all-time high. Thats a short distance that could be traversed with just a two- or three-day jog. Looking ahead, even assuming no blow-up in the Iran crisis, it now looks like crude is headed for about $75 per barrel. And if supplies are severely disrupted, its widely agreed that $100 oil is very possible. Money and Markets Larry Edelson warned you about this a long time ago. Its a shame its taken so many months for the so-called experts to catch up to him. General Motors and Ford are already sinking in quicksand, pulled under by gas price increases that already took place last year.
Thats just 35 cents away from the stocks lowest level since December 1992, over 13 years ago. The plight of GMs shares is no different. Ive warned you about this so many times in the past two years, Ive lost count. But thats past. Looking to the future, imagine whats likely to happen with a new round of fuel price surges, with still bigger hits to the sale of SUVs and other gas-guzzling vehicles, and with still more downgrades hitting their bonds, already deep in junk bond land! Americas largest airlines have lost an astounding $40 billion since 2000 as fuel prices ratcheted higher. And now, just in the past six days, jet fuel is up by a whopping 7.5%. In a knee-jerk reaction, most airlines have announced $5 fuel surcharges. But its just a patch. Even as United Airlines makes preparations to emerge from bankruptcy ten days from today, and even as other bankrupt airlines like Delta aspire to do the same, a new surge in fuel costs is bound to drive them back into Chapter 11 (protection from creditors) and even Chapter 7 (liquidation). Precious metals have already blasted off to new multi-decade highs. Remember what Sean Brodrick told you about the likely explosion in small-cap mining shares? Well, now its happening! Just yesterday, Sean attended the Vancouver Resource Investment Conference, where the smartest and earliest investors are beginning to pile in. And just a few hours from now, hell be at The Mineral Exploration Round-Up, one of the biggest pow-wows of mining companies and investors in the world. All of us are very confident that the companies he brings back are likely to be among the biggest winners in the burgeoning boom. But if you want to join the small group of investors that have already jumped on this opportunity, it could be now or never. About 90% of the slots in his new service have already been sold out.
If you dont, look at the chart he sent you on that day. In his chart, he pointed out how gold was just beginning to break out of its channel, signaling the next phase in the gold bull market. Then he drew another line, far above, writing that gold will be attracted like a magnet to this rising line. Thats exactly what has been happening: Golds rise since December 15 has traversed roughly half the distance to the target line. That means it still has quite a ways to go.
And Larry has not been bashful about talking about $1,000 gold down the road. Platinum is already there, with the nearest futures contract closing at $1,050 on Friday. That critical psychological barrier has been shattered not once, but twice. Interest rates have already been rising steadily for the last 20 months. The Fed began hiking its short-term rates in June of 2004. Now theyre more than FOUR times higher. And with commodity prices surging, Wall Streets recent talk of rate hikes coming to a premature end is a pipe dream. The U.S. housing market has already turned sour. Just this weekend, our real estate specialist, Michael Larson, sent me an email with new, even louder alarm bells ringing: Housing starts have plunged more than twice as much as analysts expected in December. Building permit issuance an indication of future construction activity has sunk to a seven-month low. The National Association of Home Builders housing market index, a gauge of builder sales and home buyer traffic, plunged to the lowest reading in 32 months, and the January reading showed no bounce whatsoever. New home sales tanked more than 11% in November, the worst drop in almost 12 years. Inventory jumped to 503,000, the highest in U.S. history. Right here in the West Palm Beach area, he wrote, the for-sale inventory surged 93% in December compared to the year earlier, while sales plunged 50%. I started tracking for-sale inventory in June 2005, searching for how many properties there were on the market in my zip code. The first time, I got 150 listings. Just today, I got 393 results. Thats an increase of 162% in seven months. Dont let anybody tell you that our market is still hot. Inventory is skyrocketing and it looks like sales are falling. The U.S. dollar has already been falling. Last year, it enjoyed a bit of a rally. But the most it gained was about one third of its previous decline. Meanwhile, windfall profits for investors in energy companies and others linked to Last week, Enerplus (ERF), which weve been highlighting continually here in Money and Markets, pierced the $50 barrier … and then just kept on going. It got as high as $50.83, closing at $50.62, the highest in history. Naturally, as with any stock, theres always risk of loss. But investors who bought this oil and gas royalty trust exactly one year ago (paying $36.67) are now up 38% not too shabby for an investment thats paying a rich dividend yield of 8.63%. And Enerplus is a relatively conservative energy investment. The gains in many other energy stocks have been even more dramatic. Most important, make sure youre never fooled by the schizophrenic stock market, a phenomenon thats also already in place. Last year, I showed you how the broad averages like the Dow, the S&P and the Nasdaq disguise the markets split personality natural resource sectors surging, most other key sectors trailing or falling. That was true when the Dow was barreling ahead in its year-end and year-opening rallies … while major victims of the energy crisis continued to sink.
While … Energy stocks, such as those in the Oil Service HOLDRS (OIH), catapulted higher, reaching still-another all-time peak. This is another prime example of the schizophrenic stock market, and another reason you need to stay on high alert right now. Why the Great Oil Shock Is Everything Ive shown you so far this morning … and everything you can see in the markets with your own eyes … are repercussions of the forces that have already been firmly in place, before the Great Oil Shock. Now, let me show you why The Great Oil Shock is so dangerously close … and so difficult to stop. First, Iran. On Thursday, Larry demonstrated the futility of diplomacy and the near inevitability of an escalated conflict, even war. Iran is:
Im not. I was working toward my doctorate at Columbia at the time. I was there when the quiet of the campus was shattered by daily demonstrations of Iranian students in support of Ayatollah Khomeinis revolution. Later, I saw how Iranians of all genders and all ages were swept up in the fervor of the attacks on the American Embassy in Tehran. Mark my words: The blow-up with Iran is serious. And its just beginning. Second, Nigeria. Most Americans are learning about the armed attacks on the rich oil fields of the Niger Delta for the first time. But this conflict has deep roots, and its been building up toward an explosion for decades. The people of the region have been protesting their horrendous living conditions since the early 1990s, but such protests have routinely been met with brutal repression by Nigerian police. During 1990, people in one village spoke out against the oil pollution of their homeland, only to be set upon by the notorious Mobile Police (known locally as the “Kill and Go”) who bombarded the village, killing more than 100 people as they looted homes. In response, a new organization, the Movement for the Survival of the Ogoni People (MOSOP), demanded local control of political and environmental affairs, blaming Shell Oil for the massacres. Then, in 1993, roughly 300,000 people gathered in protest in the Ogoni village of Bori, to declare Shell Oil persona non grata on their land. Shell was forced to suspend oil production. But later, more than 2,000 villagers were killed, 37 villages substantially destroyed, and about 30,000 displaced from their homes.
This is the backdrop for the latest attacks. Now, a more militant group, the Martyrs Brigade, has emerged. On Friday, the group claimed responsibility for the blowing up of the Nigerian National Petroleum Corporation (NNPC) pipelines last Wednesday. Four oil workers have been kidnapped. A shutdown of most of Nigerias oil production looms. Third, Venezuela. About two weeks ago, President Hugo Chavez again declared that the US administration is the main threat to Venezuela. He said that if a US invasion should occur, they would certainly be defeated. This is the kind of bellicose statement that seems to define the relationship between our two countries. His primary weapon is the same as Irans: Not bombs. Not troops. Just oil! Precisely how he will use it remains to be seen. But merely the threat of an oil war between U.S. and Venezuela, its primary supplier, is enough to send oil prices soaring. Fourth, almost every other nation that the U.S. is counting on as an alternative source of oil. That includes Mexico, Colombia, Russia, Azerbaijan, Kazakhstan and Angola. Without exception, their oil operations are threatened by corruption … organized crime … civil war … political turmoil … or ruthless dictators. You Should ALREADY Be Prepared! These are time bombs with short fuses. Not coincidentally, they are blowing up precisely when the last vestige of balance between the supply and demand for energy has disappeared. So the Great Oil Shock is not the future. Its here. If you want to protect yourself and to profit, I trust you have already taken the necessary steps. If not, better late than never. One. Get your keep-safe money to safety, where it belongs. Regardless of the low yield, thats still U.S. Treasury bills or money market funds specialized in short-term Treasuries. Two. Maintain a solid allocation to gold-related investments. Theyre going through the roof and should continue to do so, despite sharp corrections. Three. Stick with the energy investments weve been tracking here for you. Theyre in a blast-off stage that shows no sign of letting up. Four. For maximum potential rewards with minimum capital exposure, join Sean with his small-cap natural resource selections. About 90% of the original 500 slots in his service are already sold out. The rest will be gone in a few days. The number to call is 800-400-6916- mention priority code p446-63082. Or visit this page to sign up online. Good luck and God bless! Martin 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, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others. 2006 by Weiss Research, Inc. All rights reserved. |
The Great Oil Shock
I am writing you this morning to warn you about the Great Oil Shock. 
Oil and gas prices are already in a sweeping, long-term uptrend the same uptrend weve been showing you here for many months. 
And on Friday, Ford fell another 4%, closing at a meager $7.90 per share. 
And remember what Larry told you about the likely explosion in gold bullion on December 15 of last year? 
Also bear in mind that the line in Larrys chart is a moving target continually rising with the progression of time. So $600 gold, even $700 gold may not be that far away. 
the natural resource boom have also been with us for many months, with the likelihood of more to come. 
And it was also true on Friday, as the Dow Jones Industrials tumbled head over heels in its worst decline in three years … 
Anyone who underestimates Irans ability and willingness to turn the world upside down must be too young to remember the day, one-quarter of a century ago, when anti-American venom first overcame most of its population. 
On October 31, 1995, Ken Saro-Wiwa, the most prominent leader of MOSOP, plus eight others, were sentenced to death by a special tribunal. They were executed ten days later. Previous post: Five New Hot Prospects
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