Read if you like.....Expert predicts $190 oil this winter...here's what to do about it
"The world will have to learn to live with higher oil prices."
- Alan Greenspan, October 17, 2005
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I've got some pressing news that simply can't wait. It appears I'm being out-done by Matthew Simmons.
For those of you who don't know Matt, he's been an energy advisor to the current Bush Administration, is a highly regarded and sought-after energy investment, and he recently published a book called Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy.
In short, Matt believes the world is staring at a nightmare scenario: Screaming oil demand meeting dwindling supplies.
Here are some frightening statistics:
Right now the world consumes 84 million barrels of oil per day.
In 10 years, with China and India consuming oil like mad, it's estimated that the world will consume 103 million barrels per day.
That's a gain in demand (not supply) of 19 million barrels of oil per day.
Now, here's what has Simmons so concerned. Saudi Arabia, the largest oil producing nation in the world, produces 9.7 million of oil per day. According to Simmons, who has extensively studied Saudi's oil fields, Saudi oil production is maxed out. They simply can't produced more oil.
So, if that is indeed the case, to meet the extra 19 million barrels of oil per day demand by 2015, the world will need to find the equivalent of 1.96 more Saudi Arabia's.
It gets worse.
The estimate for 2025 is that world demand for oil will stand at 119 million barrels. (It should be noted these are low-end estimates. Some estimates have oil demand in 2025 at 123 to 125 million barrels.)
So, if demand is to increase to 119 million barrels in 20 years, that's a net gain in demand of 35 million barrels.
Do the math.
Take Saudi Arabia's current daily production of 9.7 million barrels, and we need to find the equivalent of 3.6 new Saudi Arabia's to meet that demand.
My friends, the jig is up.
But, it gets even worse.
GREENSPAN WARNS THE WORLD:
"We'll have to live with high oil prices."
The price of oil has hit a new price paradigm. It's no longer $25 a barrel... or even $40 a barrel.
It's $60!
Right now, the energy market is experiencing a much-needed pull-back. And since October is a bad month for the stock market, I'm recommending all my readers to buy energies on every dip.
This mathematical scenario I just presented assumes that oil production remains constant. that there won't be any decrease in the rate of production. Peak oil proves this to be wrong.
As these big oil fields, which have been producing for more than 50 years, reach peak, the rate of production will decline dramatically.
I'm hearing reports that world oil production is set to decrease 3% per year while world oil demand is increasing nearly 2% per year.
That estimate comes from numerous sources, not the least of which is Vice President Dick Cheney himself. In a 1999 speech he gave while still CEO of Halliburton, Cheney stated:
By some estimates, there will be an average of two-percent annual growth in global oil demand over the years ahead, along with, conservatively, a three-percent natural decline in production from existing reserves.That means by 2010 we will need on the order of an additional 50 million barrels a day.
The new discoveries the world was hoping for just aren't there. Fifty years ago, the world was consuming 4 billion barrels of oil per year and the average discovery was around 30 billion. Today we consume 30 billion barrels per year and the discovery rate is approaching 4 billion barrels of crude per year.
We're heading into the abyss.
Back to Matt Simmons.
You'll recall that I conducted an exclusive interview with Matt back in July. In that interview Matt dropped one helluv a bomb: He predicted that natural gas was headed to $60 per mcf. and maybe even $70 per mcf.
Not exactly a natural gas supply bull myself, I came out with my own price prediction for natural gas this winter: $20. And I said oil could hit $105.
Well, Matt just did me one better.
In an interview he gave yesterday, Simmons said:
"Prices are really cheap today and they need to go a lot higher, and they probably will go a lot higher.
I am very concerned, given the destructive damage done by (Hurricanes) Katrina and Rita, that the United States must be closer to starting to see significant product shortages than we've seen since 1979.
Either one of those events (oil product shortage or natural gas shortage) could send prices two to three times higher than they are today.
Everyone keeps thinking there is a (price) ceiling...There is no ceiling.
It's going to be painful for people to get used to actually paying real money for a really valuable resource."
With oil currently trading for about $60 a barrel, "three times higher than they are today" means we could see oil around $190 a barrel.
Having said that, let me tell you what you should do as an investor. We're currently seeing consolidation in the energy markets. Oil is selling off as I write this. This is an excellent opportunity to either add to existing positions, or to acquire new positions in quality energy stocks.
By the way, in my energy options trading service, the Daily Energy Alert, we nailed the short term sell-off by buying puts on crude. The Power Position Ratio was spot on. If you want to play the short-term fluctuations of the energy market, read my report on the Power Position Ratio.
However, while we're playing the short-term moves in energies, we're also buying the dips in energy stocks, knowing that these stocks are going much higher in the coming months.
I can't tell you how many times I've urged readers to use weakness to add or buy positions, only to get emails months later from readers saying... "Mike, I wished I'd taken your advice and bought this or that."
Don't let this latest dip slip by you.
Take a look at a chart of the Toronto Stock Exchange which consists of 25% energy stocks:
Based on the chart, I believe we're getting close to putting in a bottom.
And here's the deal. It's October 20. We're heading into the winter. I'm telling you, energy stocks are going to rally during the winter months... as oil, natural gas and heating oil move to higher levels.
Good luck, and happy trading,