Wednesday, June 2, 2010

What Will Make Oil Prices Rise this Summer? Kevin McElroy!

Kevin McElroy | Resource Prospector

•War and Oil Price Spikes
•The 13 Safe Ways to Profit From Oil
•One Bakken Small-Cap Could Double in PriceOil investors are looking for any reason for oil to go up in price these days.

We all tacitly know that much higher oil prices are coming. But with the economy in a perpetual cycle of stagnation, continued bad news from Europe, and concerns that growth is stalling in China, oil can’t seem to find a foothold.
But I believe that oil is one minor war-action away from higher highs this summer.
That brings me to something my wife and I encountered yesterday.
I should note, I’m writing today’s issue from a hotel room in Boston. My wife and I are celebrating our first wedding anniversary this week.
After spending yesterday afternoon ferrying between Boston’s harbor islands, we encountered what I believe may be the catalyst for higher oil prices this summer.
In Boston Common, amid the hot dog stands and balloon vendors, hundreds of pro-Palestinian protesters greeted us on our walk back to our hotel in Back Bay.
Being on vacation, and trying desperately to avoid television, we weren’t aware of the recent headlines from Gaza – where Israeli commandoes boarded a flotilla of activists headed for Israel’s blockade of the 20 mile strip of Palestine.
The protestors all had the same old pro-Palestine signs, along with some language about a blockade but I didn’t think much of it –I’ve seen similar signage at International Monetary Fund protests in Washington DC, Republican rallies in Philadelphia, Democrat rallies in Baltimore, and pro-life/pro-choice marches everywhere in between.
If you rally a few college students for a cause that someone finds worthy of protest, eventually, the Israel/Palestine contingent will show up to remind us that yes, the two nations still don’t get along.
But I’m not here to pick sides – I’d sooner kick over a hornet’s nest than wade into Israeli-Palestinian politics.
I’m here to survey the situation for its profit potential.
And simply put, war in the headlines almost always means higher oil prices. War in the Middle East, even more so.
Take a look at this chart that plots oil prices in 2008 dollars since the end of World War II:

You can see how oil prices seem to track Middle East war headlines and little else. Will Israel and Palestine resume hostilities? I don’t know, but it’s exactly these kinds of headlines that act as a catalyst for higher oil prices.
I use the word catalyst as a direct metaphor. If you remember from high school chemistry, a catalyst is a substance that increases the rate of a reaction. A skirmish in Gaza might not pinch the hose of oil supply one iota, but it can have the effect of making people bid the price of oil higher regardless of real supply and demand forces.
And as we remember from the summer of 2008, sometimes higher oil prices themselves are a catalyst for ever-higher oil prices.
The safe way to play higher oil prices is to buy the biggest and best oil companies. I use the companies in the AMEX Oil Index (AMEX: XOI) as a good starting point. These 13 companies represent the biggest publicly traded oil producers, drillers, explorers and developers. You can see the names of all 13 by clicking here. In 2008 when oil prices jumped from $90 up to $140, a 55% gain, this index only moved 30%, lagging oil prices a bit
You’ll see that BP Plc (NYSE: BP) is included in the index, which isn’t surprising given its size. I’ve been subtly pointing out that BP currently sells for about as cheap as you’re ever likely to see a blue-chip oil company. It could fall further, for sure – and until they’ve capped the leak, I expect them to. And while I think BP is a great buy, it’s also kind of abhorrent to put your capital into a company that’s responsible for thousands of gallons of oil being pumped into the ocean.
So don’t buy BP today unless you want to own a company that’s polluting the Gulf of Mexico. But the rest of the companies in that index should greatly benefit from oil’s upside, and they have the added benefit of being huge, multinational blue chips. When oil prices fell 75% from $140 down to $35, this oil index only fell 50%.
If you’re looking for a stock with the potential to double or triple in a matter of a few weeks, you might consider investing in a small domestic company that’s already producing oil in America’s largest oil reserve: the Bakken.
According to The Wall Street Journal, the Bakken “could contain as much as 413 billion barrels of oil in place... That's bigger than Saudi Arabia's Ghawar field, which has 125 billion barrels.”
My colleague and Energy World Profits Chief Investment Strategist Ian Wyatt recently finished a report all about an American company with the most producing wells in the entire Bakken formation. It’s a tiny company with a market cap under $900 million, so I can’t publish its name here – but it’s profitable today with oil at $74 a barrel. Any increase in oil prices seems to have a three-fold effect on this company’s stock price.
As oil rose from below $40 last year up to $74 today, this company saw its share price increase from $2 up to over $14. That’s huge upside correlation with oil prices. If oil goes to $100 this summer, this could easily be a $30 stock.
If you’d like the name of this company, I have good news. I want to share it with you, and all I ask is that you click this link and take a trial subscription to Energy World Profits. This trial subscription comes with a 60 day money back guarantee – which should be plenty of time to gauge the success of this tiny Bakken oil play.
I’ll be in Boston all this week on vacation, but will still be writing the Resource Prospector. I’ll also continue to check my email regularly. Please drop me a line at
Good investing,
Kevin McElroy
Resource Prospector

1 comment:

  1. It was a nice blog cover the importance of Tamar gas reservoir. And how drilling rig in Israel is very important to Israel's Energy Independence and economy. Thanks for sharing