However, Matt Badiali in The Growth Stock Wire says lower crude oil prices should be good news for fuel refiners. When oil prices were in the stratosphere this summer, refiners lost out because demand for gas dropped hard.

Matt says refiners’ stock is rising and should continue to do so, as long as we don’t see another spike in crude prices…

This from Matt:

From an investors’ prospective, refining seems like a bulletproof investment. These companies have a huge “moat” because you can’t build new refiners. And they supply a necessary commodity – it’s not as if you can turn to some other fuel for your car if the price goes up.

But Americans parked their cars when the price of gasoline hit $4 a gallon. So not only were refiners losing money on the margins, they sold fewer gallons.

For example, Sunoco – an average U.S. refiner – lost $91 million on its refining business during the first half of 2008. It earned $558 million in that same period in 2007. Shares of the company are down 46% from their 52-week high.

However, those shares are also up 35% since early July, when they bottomed. Barring another spike in the oil price, I think refiners’ share prices will come up. But thousands of companies out there make much better margins than refiners. It’s a cyclical business… and tough to make money on in the long term.

Source: Are Refiners a Buy at Last?

I think precious metals are a pretty low-risk investment in general right now. We’re on the brink of a global inflation crisis.

I’m no economist, but I know inflation when I see it. The price of oil is incredibly high. Oil affects the price of everything. Plastics are made from oil. Trucks, trains, and boats that move goods from point A to point B burn oil products. No matter what it is, if you bought it, you paid an “oil tax.”

That’s not an American phenomenon, that’s worldwide. High oil prices mean price inflation on a global scale.

Take a look at Asia, where Indonesia’s inflation rate is 10%, the Philippines’ is 10%, and India’s is 12%. Those countries are indicative of much of the developing world, where food and fuel prices have a bigger impact on the economy than in the West.

However, even in places like England, inflation is skyrocketing. The Financial Times reported inflation rose to 3.8% in June alone. The head of the Bank of England forecasts 4% by the end of the year – which now looks like a conservative estimate.

Global inflation is going to drive the price of gold and silver through the roof and into the sky. When inflation raises its ugly head, investors buy gold. Gold and precious metals are impossible to create from thin air (as opposed to paper and ink currencies). So as governments run printing presses night and day, the value of gold and silver soars.

The safest bet for silver bugs is a big silver exchange traded fund like PowerShares DB Silver Fund (DBS) or iShares Silver Trust (SLV). These funds are designed to track changes in the price of silver. Another possibility is the PowerShares DB Precious Metals Fund (DBP), which tracks both gold and silver.

However, I like the big silver miners. The recent market correction clobbered the entire sector. Many big silver stocks are sitting at 52-week lows. Any boost in the silver price will send them flying.

However, mining companies are risky. They can have problems with mines or striking workers. These problems can leave your shares flat while the rest of the sector soars. The best way to avoid this is to own shares of several mining companies. I don’t know of a silver mining ETF, so you’ll have to do it yourself.

Source: Commodity Q&A: The Best Time to Buy Silver is Right Now

Twenty years ago, Fort Worth, Texas, was a much different place than it is today.Once an unremarkable Dallas suburb, it has blossomed over the last two decades into the most important natural gas hub in the United States.

Just this week, I flew into the Dallas-Fort Worth Airport. Driving around, I was struck by how the typical suburban landscape in Fort Worth has been overrun with natural gas infrastructure. Natural gas pipes wend their way through the community. New pipeline rights of way and wells are everywhere. Companies are leasing subdivisions – cul-de-sac by cul-de-sac – to drill beneath them for gas.

You see, Fort Worth sits in the heart of the gas-rich geologic formation known as the Barnett Shale. Shale is a sedimentary rock made of fine particles of clay and mud deposited at the bottom of ocean basins or giant lakes. The shale oil and gas companies covet has a lot of old plants and algae mixed in. That kind of shale makes natural gas and sometimes oil over time. The Barnett Shale is a textbook example.

Here’s what Oil and Gas Investor recently said about the Barnett Shale:

With high-profile Barnett asset sales of more than $1 billion and gross production topping 1 billion cubic feet per day (bcf) – and even the Fort Worth City Council willing to lease city land for drilling – no one needs to be convinced that shale plays are valuable, highly prospective and worth a closer look.

Indeed, the boom is on… Between 2004 and 2007 alone, the number of well permits issued by the state for the Barnett Shale rose 231%, from 1,112 to 3,679. As of June 3, energy companies had drilled 7,766 gas wells in the Barnett Shale, and drilled and permitted another 4,661 wells.

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The Barnett Shale adds $5.2 billion per year to the Fort Worth economy. You can expect that to double in the next seven years.

And plenty of energy companies have made fortunes in the Barnett Shale over the last five years. One company in the S&A Oil Report portfolio, XTO Energy (XTO), went from $32 per share to more than $73 at its peak in just two years. Another Barnett player, Quicksilver Resources (KWK), went from $19 to $45 this year alone.

The U.S. consumes about 23 trillion cubic feet of natural gas per year, but only produces about 19 trillion cubic feet. Canada supplies the rest, but it is falling short. Between a lack of drilling and the increased use in developing tar sands, Canada’s exports will dwindle.

That means the future of U.S. natural gas prices looks good for the long run.

Of course, the run-up in share prices for Barnett Shale developers like XTO and Quicksilver means we won’t find a lot of bargains there. But seeking to repeat its overwhelming success in Barnett, the energy industry has turned its attention to an equally promising shale region – this one in the birthplace of the U.S. petroleum industry, Pennsylvania.

Central Pennsylvania is flush with a dark, organic-rich shale industry professionals compare to the Barnett Shale. The shale, called Marcellus, has the kind of potential to turn poor farmers into millionaires.

Importantly, these gas-rich shale beds are close to the demand centers of the urban corridor from Boston to Richmond – unlike natural gas stranded in Colorado and Wyoming.

In 2002, the U.S. Geological Survey estimated these eastern shale beds hold 30.7 trillion cubic feet of natural gas – that’s a little more than a year’s worth of consumption for the entire U.S. But more recently, Schlumberger’s engineers updated those estimates, taking into account the technological advances from 2002 to today. Schlumberger puts the volume up as high as 1,000 trillion cubic feet – more than 32 times the old estimate.

Right now, companies are rushing to the shale region of Pennsylvania the way they did in Fort Worth a few years ago. Pretty soon, companies working there will see their shares take off the way Barnett developers did.

I’m a long-term natural gas bull, so I think you’ll do well in several different kinds of investments here… from pipelines to ETFs to exploration companies. But for the biggest returns, I recommend focusing on Pennsylvania – the site of the next great American energy boom.

Source: Why Pennsylvania Land Prices Are Skyrocketing

This piece is taken from The Growth Stock Wire. It’s in the form of a questions and answers session. But it’s well worth the read if you’re interested in the ins and outs of shale oil.

The Commodity Investor

Matt Badiali

Q: I’ve read some articles on shale gas. What is the big deal with this stuff? – H.B.A: Shale is the world’s most common rock, formed from mud and clay deposited at the bottoms of lakes and ocean basins. Shale looks like the slate you see in chalkboards or on roofs, (slate is actually shale that was “cooked” in the earth).

Clay and mud are tiny -– much smaller than sand. So it’s hard to tap shale deposits. (See the next question, about the Bakken Shale, for more details.)

Some shale is full of old plants and animals. These shales become the source rocks for oil and natural gas. In the past, it didn’t make sense to drill shale for either oil or gas. Shale presented technical challenges that were beyond most of the industry. However, that began to change in 1990, when oil-service giant Schlumberger began focusing its attention on the natural gas in shale.

The company estimates that shale contains 500 billion to 780 billion thousand cubic feet (MCF). We consume about 23 billion MCF per year, so that’s about 20 to 34 years worth of natural gas. Today, one MCF sells for more than $13. So the reward is in the trillions of dollars.

The Barnett Shale became the proving ground for shale technologies. Barnett is in the Fort Worth Basin of Texas, which underlies the entire region west of the city of Fort Worth. The Barnett Shale holds between 25 billion and 250 billion MCF.

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I’m not targeting companies that are just Barnett players for investment. However, I am interested in companies that learned how to drill the Barnett and are now leasing land in the many new shale regions.

Investors can take a look at companies operating in the Huron Shale in southern Ohio, the Fayetteville Shale in Arkansas, and the Ootla in Canada.

Q: Why can’t we pump all the oil out of the Bakken Shale? – D.S.

A: The Bakken Shale, the granddaddy of the shale oil fields, underlies northeastern Montana and western North Dakota. A recent government report put the amount of oil in the Bakken Shale between 200 billion and 400 billion barrels: enough to eliminate our oil imports for at least 45 years.

However, the report also says we can only recover about 3 billion to 4 billion barrels of that oil with current technology. That’s a terrible recovery rate… around 1% or 2%.

The problem with the Bakken Shale – and with many of the shale deposits around the world – is “permeability.”

Some reservoirs are like a glass of grape juice and ice cubes. You stick in a straw and suck up the juice around the ice cubes. That’s a permeable reservoir.

However, some reservoirs are like clusters of grapes. You know there’s a lot of juice in there, you just can’t get it out. You have to stick the straw in each grape, suck a little, and then move to the next one. That’s an impermeable reservoir.

Impermeability is one of the problems facing by companies working in the Bakken Shale and other “unconventional” oil fields. You need a way to put the straw through as many grapes as possible.

It took a long time for oil companies to realize that drilling straight down wasn’t the best way to do that. The solution is directional drilling. In directional drilling, the well is drilled at an angle using a computer to help guide the drill bit.

I visited a well in south Texas where the bit went down deeper than a mile, then turned west and drilled horizontally for more than a mile. I was amazed… Here was this thick steel drill casing, steered by an engineer in a truck miles away. Now nearly all the big drilling and service companies, like Schlumberger (SLB), Halliburton (HAL), and Baker Hughes (BHI), offer steerable drilling in three dimensions.

In 1990, only about 40 rigs, or 6% of all the rigs in the U.S., were drilling horizontally. As of last month (according to the Department of Energy), 519 rigs, or 28% of the total, were drilling horizontally.

That makes it much easier for oil companies to get more out of their shale deposits. And as this technology advances, I think more of Bakken’s “grapes” will yield oil.

Some excellent companies are drilling in Bakken, including XTO Energy (XTO). But while XTO is adding reserves, you’re going to have to pay up for the growth these days. I told readers of the S&A Oil Report about the company last July, and we’re up 41% so far.

Good investing,

Matt

Source: The Commodity Investor Q&A

Matt says Hirsch is a nut who is ignoring demand and only looking at supply.

Recent developments support both sides of the argument.

Today’s Financial Times reports that “oil prices dropped sharply yesterday as traders reacted negatively to evidence that record retail petrol prices above $4 a gallon were damaging demand in the US.”

AP reports that oil prices have soared “after the president of OPEC, Algerian Energy Minister Chakib Khelil, said crude could hit a record 170 dollars this year owing to a weak US currency and geopolitical unrest.”

Oil prices are currently up above $137 on the Nymex.

Commodity Q&A: $500 Oil

by Matt Badiali

Q: I heard someone on CNBC call for $500 oil in three years? Do you think prices will go that high? – N.B.

A: Dr. Robert Hirsch is the Senior Energy Advisor at Management Information Services, an economic and energy research firm. He’s a peak oil guru.

And frankly, I think he’s a nut.

When he was on CNBC, he was “talking his book,” calling for huge price increases in oil. But Hirsch made a mistake common among scientists: He fell in love with his theory and forgot his basic principles.

Now, Hirsch probably forgot more about economics than I’ll ever know. However, I think when he predicts oil at $500 a barrel, he’s ignoring demand and only looking at supply.

If you think supply is inadequate, like Hirsch, then you extrapolate nightmare scenarios of skyrocketing prices. To strengthen his argument, Hirsch adds growing populations around the world and claims that they will also compete for oil.

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But think about what $500 oil by 2011 would mean – gasoline at $12 to $15 a gallon… not to mention jet fuel, diesel, and so on. Cars would sit idle in driveways. We couldn’t afford to ship packages or buy produce from outside our own zip code.

Hirsch ignores the basic fact that demand must fall off long before oil hits $500.

Let’s look at a simple statistic: Drivers consume more than 60% of all the oil used in the U.S. That demand can be cut… radically. Take my parents, for example. They work about four blocks apart… but take separate cars. That’s an easy fix if gas prices go nuts.

And the Energy Information Administration (EIA), a division of the Department of Energy, thinks the U.S. population is already making those choices. It predicts U.S. petroleum consumption will fall by 440,000 barrels per day over the next year.

That’s only a fall of 2.1% in 2008. But the EIA originally predicted a fall of less than half that. I expect the actual decrease will be larger than even this estimate.

Same thing goes for demand in China. The government just cut its oil subsidy. Guess what? Demand is going down.

Dr. Hirsch needs to rethink his theory.

Source: Commodity Q&A: $500 Oil

A colleague and I flew to Alberta and drove from Edmonton to Fort McMurray to visit an area I call America’s Gas Tank… the Canadian tar sands.

The drive took five and a half hours along what some people call the “world’s most dangerous highway.” It’s a narrow road traveled constantly by heavy trucks. Near Edmonton, the landscape is rolling dairy farms, dotted with oil and gas wells among the cows. About an hour away from town, you enter a pine forest that stretches for miles and miles.

Below those trees lies the largest oil deposit outside Saudi Arabia.

North of Fort McMurray, you come across the Syncrude mine. A mile-wide break in the forest stretches out in both directions. It takes something like two years to prep a site for mining. A company has to clear the trees and carefully strip off the muskeg, which is like topsoil, to use again when it remediates the area. Then miners strip off the top layers of sand to get to the tar layer.

The air is thick with the smell of raw oil. The shovel I stood in came right out of the mine, left on the side of the road as a monument when its replacement came. Today, the region’s three mines generate more than 860,000 barrels of tar-sand oil a day.

Just five years ago, these tar sands were more experiment than money machine. Those huge mining shovels are expensive, and refining the bitumen costs more than refining the light, sweet crude oil that comes through the drill pipes at work in other parts of the world. All told, mining a barrel of tar sand costs roughly $35. Back in 2003, oil traded for about $30 a barrel, and the only two companies mining here barely broke even.

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Today, oil costs more than $125 a barrel, and the experiment is over. It’s more of an explosion…

Forward-thinking oil companies began moving into the Alberta oil sands when oil prices climbed into the $50-a-barrel range. As oil prices moved past $60, the big oil companies started to scramble for tar-sand lands. They needed to get a slice of the world’s largest safe oil deposit. It was like a giant game of musical chairs, without enough chairs.

The companies lucky enough to find a seat are investing awesome amounts of money for the long run. An estimated $159 billion has been spent on infrastructure (mines, pipelines, power lines, wells, etc.) so far. Another $80 billion will be spent over the next two years.

That’s because, outside of Saudi Arabia, this is one of the only places in the world with spare production capacity. However, “turning on the taps” in an oil field takes time… even in Saudi Arabia.

In addition, many traditional oil-producing nations are generating much less than in years past. The single best example is OPEC member Indonesia. The country’s oil production declined 35% over the last 10 years. It no longer exports oil… Now Indonesia must import it. The country will quit OPEC at the end of this year. Mexico is also a big oil producer. It provides 11% of U.S. oil imports. Its production is declining.

At the same time, the developing world is consuming more and more oil. China alone is importing 10%-15% more oil this year than last year. Russia, the Middle East, India, and Latin America are all consuming more oil as their economies develop. We aren’t discovering nearly enough new large fields to meet this new demand.

This is why oil costs more than $125 a barrel. It’s also why the Canadian tar sands are so important… and why every commodity investor should be invested here for the long term. You shouldn’t just see this area as an investment however… look at it as a hedge against soaring gasoline prices. Sure, you many spend a hundred bucks to fill up the SUV, but you’ll be earning great returns on your oil money.

To get started on further research, check out the natural gas and infrastructure plays I’ve written about in these pages. There’s also an inventive oil sands ETF administered by Claymore. It’s tiny (far too small for me to recommend to my S&A Oil Report readers) and trades… where else but in Canada!

Good investing,

Matt

P.S. For my top ideas in Canadian oil sands, check out the latest issue of the S&A Oil Report. It’s a totally risk-free subscription, and you’ll probably make back the entire cost within a month in our next big Canadian winner. Click here to learn more.

Source: Here’s Where to Find the World’s Most Interesting ETF

Q: What are your thoughts on the drillers? – J.D.

A: That’s a pretty broad question, because there are several different kinds of drillers. However, high oil prices are good for all of them…

Natural gas, for example, is the commodity of the minute. The price of natural gas rose 113% since its low of $5.25 in September 2007. That’s important because 79% of the rigs drilling in the U.S. are looking for natural gas, not oil.

High natural gas prices mean strong demand for drill rigs. More demand means higher day-rates for the rigs. That means it’s a great time to own drillers. But is it a great time to buy?

It is… if you can find ones that aren’t making new highs already. Helmerich & Payne (HP), to pick one natural gas driller, is hitting all-time highs right now. You’re paying 15 times earnings and taking on the risk of the natural gas price falling.

I wouldn’t buy HP right now. But I do think there are other opportunities. I’m researching a couple for my S&A Oil Report subscribers right now.

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Q: What do you think of all the protests against high gas prices? – R.T.

A: In my introductory biology class at Penn State, my professor told us a story…

Some years ago, in central Pennsylvania, there was an abundance of rain, and the clover grew thick. Lots of clover meant the rabbits had plenty to eat. Happy rabbits did what rabbits do… and pretty soon, the place was overrun with rabbits.

Lots of rabbits meant the foxes had plenty to eat. They got fat and sleek. They also made lots of baby foxes. But after a while, those rabbits ate all the extra clover. That meant they weren’t making more rabbits quite as fast as before. Fewer bunnies meant more hungry foxes.

Eventually some of those foxes starved.

In terms of oil, we’ve run out of clover – big, easy-to-find, easy-to-pump deposits. So refining companies (the rabbits in our story) are hurting. There is too much competition for too few resources. Now the airlines, truckers, and SUV drivers (our foxes) are getting hungry.

The world’s demand for fuel is catching up with an industry that really hasn’t changed much since the 1970s. Oil and gas prices must respond to market forces (and go up) to make us change. The protests are simply the whimpers of starving foxes.

Note: I got loads of responses to my request for more gold funds…

The big one you mentioned was the Central Fund of Canada (CEF). This $1.5 billion fund holds gold and silver bullion. Currently, shares trade nearly 9% above the value of the fund’s assets. That means you’re paying $90 more than you need to on every $1,000 you invest in the stock.

That’s fairly unusual among gold funds. The largest of them all, GLD, trades at a 0.42% premium to its assets. IAU trades at a 0.16% discount to its net asset value. If you are just trying to buy gold, find a fund that is liquid and trades close to its net asset value.

Another mixed fund is the Gabelli Global Gold, Natural Resources, and Income trust (GGN). The fund focuses on global natural resource and mining stocks. So it isn’t a pure play on gold. This fund’s largest holding is actually Petrobras, the Brazilian oil company. It’s trading at nearly an 8.5% discount to the value of its assets and it uses creative financial strategies (selling covered calls) to generate a 5.8% yield.

Finally, you’ve got Deutsche Bank’s Double Short (DZZ) and Double Long (DGP) Exchange Traded Notes. These two funds use gold futures and treasury notes to return twice the fall or twice the rise of gold, respectively. These funds are extremely risky, since they double the performance of the metal. You shouldn’t ever invest more money than you can afford to lose into this type of fund.

Good investing,

Matt

P.S. If you’ve got a question about commodities or commodity producers, shoot me an e-mail. (Bear in mind, I can’t give out personalized investment advice.) I answer reader questions every Wednesday in Growth Stock Wire.

Source: The Commodity Investor Q&A Wednesday, June 4, 2008

From the air, the north end of the Carlin Trend looks like a suburban housing development – of gold mines. Most of the mines dotting this region are simply huge holes in the ground (called open-pit mines) but several of the richest mines follow the ore bodies nearly a half-mile underground.

The Leeville Mining Complex, owned by mining giant Newmont Mining, contains one such underground mine. It’s part of a huge cluster of mines located on the north end of the Carlin Trend.

The mine I visited, West Leeville, should produce about 400,000 ounces per year for six to eight years… and provide a revenue stream of about $100 million to $150 million at today’s gold prices. While Newmont technically owns this stream of gold, another company gets a steady paycheck from that production…

You see, if Nevada were a sovereign nation, it would be the world’s third-largest gold producer. The state produced 6.3 million ounces last year, 78% of U.S. gold production, and 12% of the world’s production. The heart of Nevada gold production is the Carlin Trend, which has produced more than 50 million ounces since the 1960s.

While Nevada’s mining riches are no secret to many investors, few have heard of the gold royalty business. Investing in gold royalty streams gives you a safe and diversified way to participate in the bull market in gold… without risking it all on one big strike or worrying about rising production costs.

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You see, building a large gold mine is usually a messy, expensive business.

First, you have to pay geologists to scour the Earth in search of prospective ore bodies – but that’s only after paying governments the proper permitting and licensing fees.

Let’s say you find a large body of ore after punching hundreds (and often thousands) of exploratory drill holes. Now you have to spend millions on mine infrastructure. This includes roads, mine shafts, electricity, and a smelter. In Newmont’s case with the West Leeville mine, it took six years and hundreds of millions of dollars to get it up and running.

One way a producer offsets that cost is by selling a small royalty for the life of the mine. In general, a royalty is simply the right to receive a portion of a mineral resource. It could be oil, gold, copper, or any other commodity.

The mining company gets a lump-sum payment up front, and the royalty investor gets a paycheck for the life of the mine. A royalty company may make hundreds of small investments to spread its risk and even out future payments. The royalty company then distributes a small portion of its paychecks to shareholders through dividends and invests the rest in new projects.

Investing in royalty companies is like taking the shotgun approach to mining. You get many small chances to participate in exploration, so you have the potential of a big discovery. In addition, you have minimal risk and you get a paycheck for the risk you do take.

I believe gold’s bull market will last a long, long time… and the more gold rises, the more money these royalty companies will make. If you don’t own any gold stocks, and you’re not sure how to get started, gold royalty companies are a fantastic option for the conservative investor.

Good investing,

Matt

P.S. I think royalty companies are the ideal gold investments to put in your retirement account and forget about for years. If you’d like to learn more about them and my favorite picks in the sector, click here.

Source: A Shotgun Approach to Gold Investing

Q: Any new comments on the refiners? – C.

Record high oil prices are brutalizing refiners. They can’t pass along the rising costs to consumers, so the companies’ margins are down to whiskers.

In April, I thought things couldn’t get worse. The price of a barrel of oil cost more than the amount of gasoline you can make from it. It didn’t make sense… It was like a bushel of wheat becoming more expensive than the bread you could make from it.

But that’s exactly what happened two months ago. So I figured gas prices had to rise, increasing the refiners’ margins, and jacking up their share prices. But since then, the price of oil has risen faster than the price of gasoline. The “crack spread” – the difference between the cost of oil and the price of gas or diesel – has worsened, and refining stocks have fallen further.

I was too early, but the situation still looks good for big gains… when and if the price of oil declines. If you own refiners, keep holding with an eye on your stops.

Q: I hear the same argument for natural resources as for agriculture – short-term peaks and long-term demand. What’s a short-term versus long-term strategy? – R.A.

I look at the long-term argument for agriculture investment as a function of population and modernization. The world has more people living better, and many of those people want to live like Westerners. That means eating more beef, chicken, and pork, which in turn takes a whole lot more soybeans and corn. So agriculture will continue to rise in the long run.

In the short term, agricultural stocks will face the same ebbs and flows of any market. And right now, I think we’re seeing a short-term peak.

Look at the current situation in fertilizer stocks, for example. Intrepid Potash (IPI) trades for more than 100 times earnings. Potash Corp (POT) trades for more than 40 times earnings.

These are mining companies… They usually trade at a discount to the overall market (which has a P/E of 18). How do you expect to make money as in investor when you are buying a depleting asset at 40 times its current earnings?

My inclination is to stay away from these stocks at these valuations. I’m sure you can find a few gems out there, but the big, easy money in most ag stocks has been made.

Q: What’s going on with copper? Is it too late to buy copper producers? – L.M.

Copper is a critical component of housing, cars, air conditioners, plumbing, and electricity transmission. If you don’t have copper, you don’t have modern civilization. So copper prices, much more so than gold and silver, reflect the health of the global economy…

From 2000 to 2007, the world’s copper production grew 14%. Global demand has risen at a steady 4% a year for the last 100 years, but Chinese demand for copper doubled between 2001 and 2007.

In fact, from 2000 to today, China’s growing demand for copper has accounted for 99% of the global growth in copper consumption.

China holds 16% of the world’s copper-smelting capacity, so turning copper ores into copper pipe is clearly a major industry in China. But very little of that finished copper leaves the country. Of all the raw copper China imported in 2006, it exported about 26% of it as finished goods. In 2007, that number dropped to 9%. This year (through March), China only exported about 3% of that copper. That means domestic demand for finished copper is growing.

In other words, China is solely responsible for the rising copper price. At $3.75 per pound, copper is trading near all-time highs… up roughly 400% in the last five years.

I know you don’t read Growth Stock Wire for my analysis of China’s economy… And I’m not going to try to guess what the suits at Goldman Sachs have trouble guessing. I’ll just say I believe copper prices are going to remain high enough for us to make terrific gains in base-metal producers.

Good investing,

Matt

Editor’s note: Natural-resource expert Matt Badiali answers reader questions every Wednesday in Growth Stock Wire. If you’ve got a question for the Commodity Investor, drop us a line.

Source: The Commodity Investor Q&A

One hundred ninety-five dollars is the “live-out allowance” here in Fort McMurray. This place is ground zero for the Athabasca tar-sand boom. That money amounts to hardship pay, and the miners here need it.

Fort McMurray isn’t a big town. It has just three exits on the only highway within 100 miles. Forty years ago, there wasn’t much here at all. Now it’s one of the fastest-growing towns in Canada… and the extra $50,000 or so a year those miners earn puts a lot of juice into the local economy.

I spoke to a mortgage broker here yesterday afternoon. She told me they did a billion dollars in mortgages in Fort McMurray in 2007. You’d have to sell three beachfront condos a day for a year to make that kind of money in Florida. In Fort McMurray, they did it selling mobile homes.

A typical doublewide mobile home costs around $450,000 here. A modest two-bedroom with a garage, under 1,600 square feet, will set you back nearly $700,000.

That isn’t likely to decline anytime soon. Everyone is spending money up here, and the population will continue to increase. In 1963, one company mined the tar sands. Now, more than 60 companies are falling over one another for acreage. With oil over $100 a barrel, mining this trillion-barrel deposit is just too profitable, and too safe to ignore.

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Penny Stock set to drill Canada’s largest oil sands field

Canada’s single largest oil sands holding – over 707,700 acres – is now controlled by a tiny $4 stock

They’re conducting tests to determine how much oil is buried beneath their land… Preliminary estimates are 60 BILLION barrels of oil.

The results are due back in any day… that’s when I expect this tiny company’s share price to rocket to $20… $30… possibly even $50 a share.

To read more on the story, click here.
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I see three important factors that set the tar sands apart from nearly every other large petroleum deposit in the world… factors that continue to justify your investments in the area.

1. Canada’s oil sector is private. Last week, I talked about the increasing power of state-owned oil companies. In places like Saudi Arabia and Venezuela, huge government-run companies control all aspects of oil production. Canada’s government stays out of the oil-production business.

2. Canada operates under the rule of law. I love Canadian and Australian natural resource investments. These countries have long histories of being investor friendly. Russia and Venezuela have a tendency to screw companies and individual investors.

3. Canada has a short, safe, efficient transportation route to its largest consumer – the United States. Saudi Arabia can’t say this. Its oil production is threatened by instability… and the transportation route is half the world.

These three reasons will drive an explosion in Canadian oil sands. Production will climb from 1.1 million barrels per day in 2006 to 3.8 million barrels per day in 2020… That’s 250% growth in just 14 years.

Alberta has 857 projects on the books worth $169 billion. Those projects include everything: mines, electrical generation, parks, biodiesel plants, and roads.

However, the bulk of that money comes from oil-sand development. This is one of the greatest growth stories on the planet right now. And there are lots of ways to get in…

You can buy Suncor Energy and make decent gains, but it’s like the Microsoft of the oil sands. Everybody knows about it. I prefer sticking to smaller producers and infrastructure ideas.

I still like Husky Energy for a refining infrastructure play. It’s one of Canada’s largest and most powerful oil companies… and it counts the brilliant Li Ka-shing (China’s richest man) as a big investor. Its early investments in heavy oil refining have made it one of the largest refiners in the region. S&A Oil Report readers are up about 55% on the stock… and I see bigger gains ahead.

You can also buy natural gas for a play on Canadian oil sand development. Mining and processing the oil sand consumes huge amounts of natural gas. More and more of Canada’s natural gas exports to the U.S. will be diverted to the oil sands, which should support North American natural gas prices.

Whichever route you choose, I recommend you choose it soon. I believe a long era of high oil prices is ahead… and buying into Athabasca is the safe way to profit.

Good investing,

Matt Badiali

P.S. Most investors have no idea that the development of Athabasca is also a tremendous opportunity to collect some of the highest income payments in the world.

Source: Three Reasons You Need to Invest in Tar Sands Today