While Wall Street is focused on this morning’s jobless numbers, the Iran crisis is boiling and getting ready to explode.
Just this week, Vice President Dick Cheney threatened severe consequences for Iran, hinting at sanctions … efforts to overthrow the Tehran government … even military action.
On the same day, Secretary of Defense Donald Rumsfeld accused Iran of infiltrating Iraq with paramilitary units “to do things that are harmful.â€
And just yesterday, reports surfaced that senior Israeli intelligence analysts are seriously weighing a direct attack against Iran.
In response, Iran has accused the West of a conspiracy to prevent it from acquiring modern technology … declared that “warmongers in Washington†are undermining its right to develop nuclear energy … and officially threatened the United States with “harm and pain.†All in the last few days!
This is Wall Street’s blind spot. They don’t see the impact on inflation, interest rates, bonds, and a long list of vulnerable companies. Moreover, many analysts are forgetting that the Iran crisis is coming in the midst of other massive pressures on world oil markets, the subject of Larry’s and Sean’s updates …
One of the Biggest
Not-So-White
Lies of All Time
by Sean Brodrick
Some of OPEC’s largest members, meeting in Vienna this week, are lying through their teeth about the true size of their oil reserves, according to well-respected oil experts.
It all began in the 1980s. OPEC decided to fix its members’ production quotas based on reserves. So if you were an OPEC member, the more you could goose up your estimated reserves, the bigger the quota you’d get.
Well, surprise, surprise — everybody “suddenly discovered†they were sitting on bigger reserves than they had previously reported:
- In 1984, Kuwait’s “proven†reserves miraculously jumped from 64 billion barrels to 90 billion.
- In 1987, Iraq’s reserves amazingly doubled — from 47 billion barrels to 100 billion.
- And in 1989, even Saudi Arabia’s reserves, the largest of all, suddenly grew from 170 billion barrels to 258 billion.
But it didn’t end there.
Despite constant pumping over the last ten years, these countries have “discovered†enough new reserves to replace their production and more. Iran said improved recovery methods raised its oil reserves from 96 billion barrels to 132.5 billion barrels. Saudi Arabia claims 264.3 billion barrels; Kuwait, 101.5 billion; and Iraq, 115 billion.
Dr. Colin Campbell, a retired geologist who has written extensively about this for the Association of the Study of Peak Oil & Gas (ASPO), estimates Saudi Arabia has only 61% of its claimed reserves … Iran 52% … Iraq 53% … Kuwait 55% and … the UAE, only 45%!
All told, actual OPEC reserves are only 55% of the reserves OPEC claims.
How big is this problem? Consider this: Kuwait’s overstatement alone may be twice the total estimated oil reserves of the U.S. (22 billion barrels). In other words, an amount equal to double all U.S. oil reserves may be missing.
Five More Powerful
Forces Driving World
Oil Prices Much Higher
by Larry Edelson
On a recent trip behind the Great Wall, I had the rare privilege of meeting privately with one of the top banking officials in China. I learned, first hand, what they’re planning in order to meet the country’s huge energy needs: More big deals to lock in world supplies.
The big picture: 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, China’s 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: China’s young economy is still only 36% urbanized. Yet it already consumes a third of the world’s steel … gobbles up half of the world’s cement … and guzzles the most oil in the world after the United States.
But China’s 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 officials I spoke to, over 600 million new capitalists will pour into China’s 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? Expect to see …
Hundreds of millions of more Chinese entering the modern economy for the first time …
Each placing enormous new demands on the world’s 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 apartments, condominium complexes and private homes.
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%!
Meanwhile, China currently has fewer 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 economic explosion in a nation of 1.3 billion people can only mean one thing: An explosive demand for energy, driving oil, gas and alternative energy stocks higher for years to come.
Force #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.
That’s more than three times as many consumers as in the U.S. — and India’s economy is growing more than twice as fast as ours.
The most recent analysis by The Economist’s 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.
Small-car sales are zipping along at a 17% growth rate. The ballooning Indian middle class — larger than the entire U.S. population — is on a consumption binge.
And 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.
They’re 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.
Despite all this, 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 they’ll place on the world’s fragile energy supply boggles the imagination.
Force #3
Skyrocketing Demand Is
Only HALF the Story
While demand for energy is destined to continue skyrocketing for years to come, the Earth’s 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. And much of the low-grade Russian shale oil is so hard and tar-like, you could almost build a house out of the stuff.
Bottom line: Even without the consumption explosion I’ve told you about, the world is scheduled to run out of all known oil reserves in about 35 years.
Meanwhile …
- The world’s oil fields are pumping at nearly 100% of capacity.
- 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.
- Many of the world’s oilfields and pipelines are in politically unstable regions, frequently destroyed by violent attacks.
- There are fewer than 2,500 rigs drilling for new oil in the world today, less than half as many as there were in 1981.
Force #4
65% of Global Oil Reserves
Are Now Under Siege
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 world’s largest reserves of crude oil.
We see the same pattern in Nigeria, one of America’s 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 who’s still praying for cheap oil.
Force #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.
That’s why many OPEC nations — especially Iran — are now seeking to price their oil in terms of other currencies like the euro. That’s also why other OPEC nations are starting to look at other currencies for trading oil.
Why I Believe 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 that’s selling for pennies on the dollar, or…
D) An asset that’s selling for more than it’s worth.
Again, I feel 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?â€
There’s only one place I know: The oil industry.
Many oil companies today are trading for as low as 6 times earnings, And they’re sitting on oil reserves valued at just pennies on the dollar.
Make Your Moves Now …
Right now, oil shares are trading a bit lower in a temporary correction. But like all other dips in this market, I don’t think this one will last long. Here’s what I’m 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 ExxonMobil, Chevron, and others. 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, you’ll be on the cutting edge of the takeover wave in the oil industry. AND you’ll be in the forefront of the new push forward for alternative energy.
Later this month, I’ll be advertising them on a dozen or so public websites with a retail value of $79.95 each, or $159.90 for the two. 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 you’d 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.
Best wishes,
Larry
For more information and archived issues, visit http://legacy.weissinc.com.
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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