Oil Stocks Are Heading Higher
Nobody wants to admit that oil's current supply and demand relationship is temporary. Nobody wants to acknowledge that the world faces some tough decisions in the months and years to come regarding energy supplies.
The era of cheap oil is over. Sure, we could maybe see oil in the $60's again. But it's pure folly to expect that oil prices might remain there for any length of time.
Last week we saw huge spikes in energy stocks. Remember Houston American Energy (NASDAQ: HUSA)? We've been watching this small cap oil stock with access to Colombia's vast oil reserves for well over a month now. And since February 1, the stock is up 120%! That is a massive move, and goes to show that energy stocks still have huge upside potential.
Right now, global oil production capacity—not actual production—is around 94 million barrels a day. As you can see from this chart, actual production is currently between 84 and 85 million barrels a day. Even when demand was peaking in 2007 and 2008, supply only reached 87 million barrels a day.
The world is consuming around 84 million barrels a day. At the beginning of 2008, demand was virtually even with supply at 87 million barrels a day. As we can see from these charts, supply and demand will likely reach parity again in 2010...
You may recall that it was the near parity of supply and demand that pushed oil to $147 a barrel in 2007. It seems clear to me that we are quickly approaching a similar situation. And yet analysts continue to deny the fact.
***Now, the world can produce more than 87 million barrels a day, but not a lot more. And since we know that non-OPEC supply is maxed out, it's going to be up to OPEC to make up the difference. Can we count on OPEC to keep an adequate cushion between supply and demand? Or will the lure of $150 a barrel entice OPEC to keep a lid on production and rake in the cash?
I think I know what I'd do...
***In the wake of the financial crisis in Dubai, I wouldn't be surprised if there were more Arab states with looming cash flow problems. Higher oil prices would certainly be a fix for any cash crunch.
The reality of higher oil prices is inevitable. And I believe your investments in oil and other energy sources will be among the best performers in 2010 and beyond.
If you're ready to profit from the changing dynamics of the world's energy use, plus get the details on huge profit opportunities from the Coal, Solar, and Oil and Gas stocks I'm recommending, you will want to check out my Energy World Profits advisory. We're already up 22%, 39%, and 35% on these stocks, with more gains on the way.
***Falling supply and growing demand lead to only one thing in a free market economy – higher prices. Now you can argue that the United States is moving further away from capitalism with every bill to come out of Washington, but don't tell that to oil traders.
The coming rise in energy prices is the result of limited supply and growing demand. Supply is essentially fixed by what the earth has already produced, and a recovering economy will require more energy. Sure, higher prices and new technology make it more economical to go get more of it – just look at the boom in the U.S. to go after the Marcellus shale natural gas reserves. This has helped keep natural gas prices low, but the gas is not out of the ground yet and demand is rising – prices are sure to follow.
Debate over the exact timing of peak oil (the point when the world reaches a maximum rate of petroleum extraction, after which production will always be declining) adds an interesting dimension to energy price forecasts. Some experts think we're past this point, some think it won't arrive until 2020.
But whether you think we are near, at, or past peak oil is largely irrelevant. Oil is becoming increasingly scarce and the rate of adoption of alternatives is nowhere near the rate of increasing oil demand. The discrepancy is more exaggerated in emerging markets than it is here in the U.S. This means the market will continue to put a premium on oil.
So yes, I'm bullish on energy. So how can you use this to profit with stocks?
As the price of oil and natural gas goes higher, it becomes more attractive for oil and gas companies to go get it. The more it goes up, the more opportunity they have. So buy oil and gas drillers.
*** I just added two domestic oil exploration companies to the Energy World Profits portfolio. And I think each of them is about to put in a 20% move higher, at minimum.
And considering the 50% OFF sale that's underway today for membership to Energy World Profits, the timing is perfect for you to get positioned for some solid gains and also start getting the insights and analysis of one of the world's foremost energy economists, Gregor Macdonald.
At Energy World Profits, Gregor provides the research and analysis, and I provide the investment recommendations. It's a formidable combination. And you can get it for 50% OFF. But I can't keep this sale going forever - in fact it ends at 6:00 ET today! So if you are interested you need to take advantage soon!
