Oil Will Rally
Just about every question I can come up with right now can be answered by the statement “Oil is going to rally.”
If the euro strengthens, it means that investors see progress on the debt issues and there. And it will indicate that the European Union will not be dismantled anytime soon. Any gains in the euro will come at the expense of the U.S. dollar. So based on stability in Europe, or the relative value of the U.S. dollar, oil will rally.
China just surprised economists with a stronger than expected export data for May. The implication is that global demand isn’t as weak as expected. And demand in China is probably stronger than expected. That means oil will rally.
And what if china revalues the yuan at a higher rate? Well, the yuan is pegged to the U.S. dollar, so gains for the yuan means weakness for the dollar. Oil will rally.
The potential for supply disruptions and drilling moratoriums in the Gulf of Mexico after BPs disaster suggest that oil will rally. And the stock prices of land-based producers will trade higher as they have much less risk than deepwater drillers.
But what about offshore drilling? Will it stop altogether? No. But more safety restrictions and inspections will raise the cost of drilling. And that will very likely be passed onto the consumer in the form of higher oil prices.
For the last few years, the Energy Information Agency (EIA) has maintained a rosy future for oil supply. In 2008, the EIA estimated that global supply would hit between 100 and 105 million barrels a day in 2020, and 110-115 million barrels a day in 2030.
But now, with the latest release of its annual report International Energy Outlook for 2010, the EIA is lowering its production estimates dramatically.
Oil supplies may only be between 90 and 95 million barrels a day in 2020, and 100-105 million barrels a day in 2030. These estimates are between 10 and 15 million barrels a day lower than previous estimates.
Noted energy economist and editor of Energy World Profits advisory service Gregor Macdonald has been questioning the EIA’s overly optimistic production estimates for years.
"You will recall the story that the EIA had either been fudging data or at the very least downplaying data, in an effort to diminish the urgency of peak oil," said Macdonald. "The forecasting of the EIA has been abysmal this decade. The actual growth of global crude oil supply compared to their forecasts has been so far off the mark that the agency probably shouldn’t have even bothered to produce forecasts."
Macdonald continued, "Non-OPEC oil production peaked five year ago, in 2005, at 42 million barrels a day, and is currently on care and maintenance. Not only is Peak Oil here, it's probably already past."
The latest revised estimates from the EIA suggest that Gregor Macdonald is correct: oil supplies cannot increase. If so, his forecast that oil prices could hit $200 by the next presidential election could become reality.
Even the weather forecasters are behind oil prices. They are calling for a very active hurricane season. And that will mean further disruptions to Gulf of Mexico supply. That means higher oil prices.
Right now, land-based oil stocks are the biggest “no-brainer” investment I can think of. I’ve been recommending Bakken oil producers to my Energy World Profits readers for the last few weeks.
The Bakken is part of a larger shale formation called the Williston Basin that stretches from Canada down into North Dakota and Wyoming. There are 5 billion barrels of confirmed recoverable oil in the Bakken. And if you include the entire Williston basin, the number is higher.
All of the Bakken stocks I’ve recommended are up between 3% and 8% today. And they’ve got a lot more room to run as their Bakken production operations expand and oil prices head higher.
My favorite Bakken stock has 23 wells producing right now, including the 2 of the 3 highest producing wells in the entire region. The company’s costs are $14 a barrel. And its aggressive drilling program calls for the addition of over 400 more wells in the next 11 years. Quite simply, this company is a cash cow. And investors will be handsomely rewarded in the years to come.
You can access my report on Bakken oil producers HERE. But even if you don’t buy into the Bakken region, get some exposure to oil. It’s going higher.
