Why Oil is Cheap… And Why it Won’t Stay That Way

It wasn’t so long ago that OIL screamed across the newswires. OIL was too expensive. A gasoline crisis sucked all of the air out of the markets in mid-2008. There was no way anyone had the attention capacity to even notice the then obvious and looming housing market crisis.

Today, the narrative is substantially different. Today, the United States is a net-oil exporter.


That means, or so the story goes, that oil prices are destined to head lower, not higher. The fear of 1970s style gas lines and rationing that crept up just a few years ago have now been replaced with dreams of a cheap-oil renaissance.

The real story differs. First, we have to understand why oil is cheap right now.

It’s cheap domestically because yes, production is on the rise – but the real story is demand. We’re using less oil. That’s a sign of a battered, slowing economy.

Is it good news then, that oil is cheap? No, not really.

And the flip side is that IF and WHEN the United States demand resumes, prices will spike.

But even if demand stays flat here in the United States, it’s not staying flat in Asia. China is slated to consume as much oil as the United States by 2020. India isn’t too far behind.

The good news?

In 2008, everyone was hyped up about oil. Everyone thought oil prices were headed higher. And it was probably the worst time in 10 years to buy almost anything involved with oil.

But today, the story is completely different. No one thinks oil is going up in price. Everyone thinks low prices are on the horizon, and no one is selling oil investments.

If you’re a contrarian (and if you want to make money as a commodity investor, you’d be better be) then you should be licking your chops for oil stocks.

For the contrarians reading this letter, take a look at a recent report my colleague Tyler Laundon put together on America’s Bakken region. It’s one of the best research reports I’ve read on oil, and while everyone else is focused on Greece and the dollar, Tyler’s readers are loading up on quality American oil stocks.

Click here to read the write-up on Tyler’s findings.

Have a great weekend,

Kevin McElroy
Resource Prospector Pro

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