hi GS, i'd like to share this for black gold.
August 17, 2006
Fellow Investor,
Thanks to the truce between Israel and Hezbollah, oil prices are dropping and the fallout could quickly blindside investors.
So please—before you even think of investing another dime in the oil markets—consider this:
1. The initial effect of the Middle East truce has been an easing of supply concerns from this volatile region removing one leg of support for $75+ prices.
In addition…
2. Prices continue to back off from record highs now that BP announced it wouldn’t completely turn off its Prudhoe Bay oilfield pipelines—opting to keep half its pipelines pumping while completing repairs.
What’s more…
3. Reduced air travel worldwide as a result of the London terror alert has also combined to reduce demand, also contributing to a 41 cent price drop last week.
When you add to that the fact that countries are quietly piling up inventories… Canadian oil sands are expected to reduce foreign dependence by 10%… and Brazil projected to declare energy independence next year…
…you can begin to see conditions are forming for an oil pullback...as $3 a gallon gas prices are beginning to make deep cuts in demand.
Is a major oil collapse inevitable...or, as many suggest, could this simply be forming the foundation of $100-a-barrel oil prices?
My answer will shock you.
Oil prices are about to take a turn that could easily split Wall Street into two separate camps:
Those who get rich...and those who lose their shirts.
I realize this sounds hard to believe, as just about any oil-related stock you may have thrown money at has handed investors major gains.
But hidden behind the scenes are far-reaching implications that will affect everything you own for years.
Could Oil Drop Below $60 Anytime Soon?
I'm Louis Navellier, and I'm not going to predict that kind of a pullback. That would be foolish. But I am worried, and you should be, too.
After all, with North Korea still flaunting its missile muscle, Iran continuing to stall on its own nuke talks, and demand from China and India growing exponentially, the odds are better than 2-to-1 that you’ll never again see $60 oil in your lifetime.
How can I be so sure?
TWO REASONS:
1. As you’ll read in a moment, the oil supply simply can’t keep pace with growing demand not only from China and India, but also from right here in the United States.
2. The oil powers saw how the U.S. economy continued to power through $70-a-barrel oil prices and are going to use the world's stage to keep oil prices high and pile on the profit for themselves.
And if you play it right, you can profit along with them as we enter a new era of higher energy prices.
For the past 18 months, as I've been telling my readers how oil and energy stocks would continue to rise higher, my readers have more than doubled their money in a handful of select oil companies:
Imperial Oil, up 175.6%
Valero Energy, up 275.9%
Occidental Petroleum, up 231.1%
Canadian Natural Resources, up 197.2%
However, even these great gains pale in comparison to what lies ahead, as the next phase of the oil boom shifts to reward a new set of oil companies.
Why Supply Simply Can't Keep Pace.
Please don't be fooled by the recent fall in oil prices to under $75. The era of cheap oil is over.
If you believe those who say the oil bubble is about to burst, my friend, you're simply going to get blindsided.
Here's why:
Most Americans don't realize this, but there have been no gasoline refineries built in the United States since 1976—30 years ago!
That's when gasoline was just 60¢ a gallon, gas-guzzling SUVs weren't even on the drawing boards, and the technology revolution hadn't even begun. The thought of China and India growing faster than 6% a year for a decade and draining the world's energy supplies was, well, unthinkable.
So it's no wonder why American refineries are working at 99% of capacity… Why oil refinery shutdowns in Louisiana, Texas, California and around the U.S. continue to squeeze gas prices higher and higher.
For these reasons, increased demand and limited refining capacity have left U.S. gas inventories 2.5% lower than last year—which is pushing pump prices higher. At current trends, in just four years—as hard as it is to believe—we could easily be looking at $5-a-gallon gas.
These conditions can only get worse, as no American city wants an ugly, stinky and potentially toxic refinery in its backyard. And even if a city wanted a refinery, tough environmental standards have made the cost of building new refineries in the U.S. prohibitive.
That's just in the U.S.
On a global scale, the gas problem is even worse. According to the world's largest oil consulting firm, in order for refining capacity to keep pace with demand, the world needs to build, count 'em, 50 to 70 refineries in the next five years.
With only four refineries under construction around the world that I know of, I can tell you that this isn't going to happen.
The bottom line is: We stand at the dawn of the greatest gasoline supply/demand squeeze the world has ever seen, as demand for refined gasoline products is exploding... while refining capacity continues to shrink.
The result will not only put powerful upward pressure on gas prices at the pump, but also under the stock prices of the world's refineries and drillers.
The Second Big Reason
Why Global Demand for Oil is Exploding.
In addition to a lack of refining capacity, the second powerful factor increasing demand for oil is coming directly from China and India, which are both projected to consume as much oil as the United States in less than 50 years.
And they're already on their way.
Most Americans don't realize this, but in just 20 years, China's energy needs will double, requiring 14.2 million barrels a day to keep their economic engine humming... while India's economy is expected to burn through 5 million barrels a day in just 15 years.
This is why China tried so desperately to buy Unocal. Why both China and India wanted to own PetroKazakhstan. And why they continue to slug it out all over the globe—from Siberia to Sudan—to secure fuel for their exploding economies.
While experts disagree on when oil supplies will be exhausted, they do agree on one thing: If demand continues to grow by as little as 2% annually, in five years supplies could fall short by two million barrels a day.
That's equivalent to Kuwait's daily production.
But Won't Canadian Oil Sands Make Up the Difference?
There's no denying that an estimated 1.7 to 2.5 trillion barrels of oil are trapped in a complex mixture of sand, water and clay.
That's second only to Saudi Arabia's vast oil reserves.
However, turning oil sands into a reliable source of oil is another thing. Most investors don't realize this, but unlike conventional crude oil you just pump from the ground, oil sands must be mined like coal and then the oil must be extracted through an expensive and complicated process.
What's more, it takes two tons of oil sands to produce just one barrel of oil. Add to that the fact that only 20% of the Canadian sands lie near the surface, and you can see why Canadian oil sands current production capacity of 2.5 million barrels isn't going to explode anytime soon.
And why I'm convinced that we won't be seeing $60 a barrel oil again.
This is why if you can take an ownership position—even a small one—in any of my top oil plays right now, you'll grasp your share of the even-bigger boom that lies ahead.
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