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They say the highway to hell is paved with good intentions. I think the same can be said for the road to $200-a-barrel oil. And the car on that road will be the Nano, the new ultra-cheap vehicle from India’s Tata Motors.
See, the Nano will be sold for less than $2,500, which suddenly puts car ownership within reach for a huge slice of India’s population.
On the surface, that sounds like a good thing, right? But consider this …
- In the U.S. we have 1,000 cars for every 1,000 adults.
- In Germany, it’s 550 cars for every 1,000 adults.
- While in India, there are just four cars for every 1,000 adults, and a population of 1.1 billion people!
In other words …
Growing Car Ownership in India Means
Millions and Millions of New Gas Guzzlers!
The Indian government is actively promoting car ownership. It hopes to QUADRUPLE automotive sales by 2016.
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| Tata’s Nano is going to make driving very affordable in India … |
But in light of the new, super-cheap Nano, India will likely hit and exceed those sales targets a lot faster!
Look, India’s economy is growing at a staggering 9% for the third year in a row. At this rate, a lot more people will be catapulted into the middle class a lot sooner than planned.
Plus, India is one of the few countries in the world where a population boom means the population is getting younger. Young people tend to spend more and save less. Result — if current trends hold, consumer spending could quadruple by 2025 to $1.5 trillion.
India’s middle class — those with annual disposable incomes between $4,380 and $21,890 in current dollars — will increase more than tenfold to 583 million by 2025, according to experts. Quite a lot of those people are going to have no problem affording cars like the new Nano!
In the process, India’s demand for fuel should surge. The country already imports more than 70% of its oil, and its gasoline demand is already growing at 7% year over year.
Do you think gasoline prices are expensive now? Just wait until 583 million Indians start filling their roads with cheap cars! Of course …
Chinese Drivers Aren’t Exactly
Sitting on their Hands, Either!
India is the second-fastest growing auto market … and China is the fastest! The country is already putting 14,000 new cars on the road EVERY DAY.
No wonder China’s demand for oil rose from 5.6 million barrels per day in 2003 to a whopping 7.6 million in 2007! What’s more, China’s oil demand will increase another 5.7% this year, according to the International Energy Agency.
And just wait until they start flooding their own market with cheap cars!
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| China and India will cause a huge spike in oil consumption! |
The cheapest car in China sells for twice the Nano’s sticker price. But you can bet Beijing will either come up with its own ultra-cheap “people’s car” or import them from India.
Bottom line: The Indians and Chinese are going to create huge demand for oil as they take up driving.
And their car-razy obsession is being repeated across all the emerging markets, turning pain at the pump into panic. Just last year, we saw fuel riots in Pakistan, China, and across parts of Africa … while last week, Iran erupted in riots over fuel. Mobs attacked government buildings and called their leaders “thieves and murderers.”
Clearly, the world is getting thirstier and thirstier for fuel, but …
Where Is All the Oil
Going to Come from?
Unfortunately, the supply side of the oil chain is suffering a crisis of its own.
I’ve been pounding the table about the looming disaster in Mexico’s Cantarell oil field, one of the biggest oil fields in the world. But the news there just gets worse and worse!
If current trends continue, Mexico, one of America’s biggest suppliers of imported oil, will become an oil importer in just eight years.
Mexico’s oil production fell 8.2% in November from the same period a year earlier. At the root of this is a three-year, 40% decline at Cantarell.
Mexico’s state-owned oil company, Pemex, is trying to reverse the ugly trend by investing $2.4 billion into Cantarell this year alone. Pemex says this should slow the decline to half of last year’s pace.
That’s still bad news!
Instead of a decrease of 400,000 barrels a day, Pemex hopes Cantarell will lose just 200,000 barrels of daily output by year’s end. Beyond that, Cantarell’s production should continue to decline 10% a year.
Pemex hoped to compensate for the decline by boosting production at its other oil fields. But the company admits that production at its next biggest field, Ku-Maloob-Zaap, also ranked in the world’s top 20 fields, will start its own decline in 2011.
Another massive field, Chicontepec, will need more than 15,000 wells to develop properly. In its entire existence since 1938, Pemex has drilled only 23,000 wells.
WARNING: I can’t over-emphasize the seriousness of this. There are only four oil fields in the world that produce more than one million barrels per day — Cantarell is one of them. It currently produces 1 of every 50 barrels of oil on the world market.
And it could suffer a “catastrophic” collapse — if sea water encroaches too far on the pillar of oil and gas in Cantarell, production could fall off a cliff.
That would have devastating repercussions at America’s gas pumps and beyond. Worse yet …
The Problems Don’t Stop in Mexico …
Or Anywhere Else, for that Matter!
On Monday, Qatar’s Energy Minister Abdullah al-Attiyah said OPEC had no control over prices. “OPEC (members) are only oil producers, they are not fixing prices. They can’t control the market forces,” al-Attiyah told reporters.
He is only the latest OPEC oil minister to say that. If you had a product that sold for over $100 a barrel, wouldn’t you pump as much of it as you could?
In fact, OPEC members cheat on their quotas when they can. I think they’re going flat-out. I believe we have hit Peak Oil. In other words, I think the world is close to producing as much oil as it can. From here, production should go downhill, and prices should go way, way up.
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U.S. crude oil stockpiles have been declining steadily since June and are at a three-year-low. At the same time, the price of oil is near an all-time high. It’s the simple law of supply and demand — and that squeeze is getting worse …
According to the EIA, global oil demand will average 87.8 million barrels per day (bpd) in 2008, which equals 1,016 barrels per second — a sonic boom of energy use!
I think oil prices could go higher — a lot higher — without seriously derailing our economy. Heck, we were told that $50 oil would cause the economy to collapse … then $60 oil … then $70 oil. Now we’re near $100 for a barrel of oil, and the economy, while wobbling, keeps sputtering along.
Meanwhile, about 3.5% of U.S. household budgets now goes to gasoline and fuel costs, according to the U.S. Bureau of Economic Analysis. While that’s up from 3% in the fourth quarter of 2006, it’s down from 5.2% in 1981, when oil prices, adjusted for inflation, were about where they are today.
Translation: Americans can afford higher prices.
That’s not to say prices can’t zig and zag — but the general trend should be up. Way, way up.
In the Process, Smart Energy
Investors Stand to Make a Fortune!
While a lot of consumers are going to lose from higher energy prices, the oil companies are going to rake in money hand over fist. And so will their investors.
Look, the situation isn’t pretty. But you can either sit around and let higher energy prices affect you, or you can protect yourself — and profit — before it’s too late.
You can find plenty of these power-packed stocks in the Energy Select SPDR (XLE), or one of the other energy sector ETFs that are stuffed with larger-cap oil & gas companies.
Of course, I’d rather you target the very best individual companies, such as …
Pick #1. An up-and-coming integrated oil company that is finding more oil than it pumps — growing reserves and pumping up profits!
Pick #2. A treasure-chest of a Canadian oil sands company — it has found a way to control costs and is bringing new projects online this year. The market hasn’t uncovered this northern gem yet, but it will!
Pick #3. Sometimes the best money is made by selling equipment to the prospectors. That’s why I like this oil fields equipment provider that’s ringing up revenues as the global quest for oil kicks into high gear!
In all, I’ve hand-picked five stocks and two red-hot funds that are ready to zoom higher along with oil prices. And I’ve put them in a special report that I’m going to send out in less than 24 hours.
I’m selling this report — including three follow-ups — for $199. I think it would be cheap at triple the price, but if you contact us at 1-800-291-8545 by midnight tonight, and mention my name, you can reserve a copy for the low pre-publication price of just $99. You can also secure your copy online by clicking here.
Then, on January 17, we’ll email you a PDF copy so you can jump on my red-hot recommendations as soon as they come off the press.
The best part is that we’re seeing a short-term pullback in oil prices right now, which will give you an excellent buying opportunity.
Wall Street didn’t see $100-a-barrel oil coming, and it’s not prepared for $150 or $200 oil, either. But you can be prepared — to protect your portfolio and potentially reap a whirlwind of gains.
Good luck and good trades,
Sean
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. 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 in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.
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