This from Fleet Street Invest:

Israeli tanks have just rolled into Gaza…Almost three thousand miles away, Nigerian separatist blew-up an oil pipeline over the weekend…Meanwhile, Russia is locked in a dispute over the price of gas with Ukraine. Today they stopped deliveries of natural gas to Ukraine, Turkey and Europe to force the Ukrainians to pay up…

While fears about political instability drive the price of oil back up again, the OPEC oil barons are tightening the screws on global oil supplies…Oil was trading at just $35 per barrel on Christmas Eve. It’s over $50 this morning. That’s a 40% gain in just two weeks. And you can bet that it is going to go a lot higher. In fact, it could easily rise another 70% by the end of this year.

Investing in oil right now could turn out to be the trade of the year. And you can thank the OPEC oil cartel for that.

A Christmas present from the OPEC oil lords

OPEC has agreed to slash its daily oil output by 4.2 million barrels per day since September. That should have sent the price of oil soaring right away. But it kept falling instead because the market didn’t believe they would actually deliver those cuts. You see, the cartel has cried wolf too often in the past, promising cuts that it didn’t deliver on.

But this time things really are different. The massive fall in the oil price threatened to destabilise the economies of the oil exporting countries. And that directly threatened the political position of regimes that run these countries.

So the OPEC oil barons are deadly serious about driving the price of oil back-up. And there is clear evidence that they’re slashing output sharply.

In October, a barrel of the lower quality “heavy” crude that most OPEC countries produce traded for about $4 less than a barrel of high quality “light” crude. Most of the light crude is produced by non-OPEC countries. Right now, it is only about 40 cents cheaper. That shows how quickly OPEC has reduced supply. And the market is set to get a lot tighter in the month ahead as OPEC keeps cutting production.

Investing in oil right now is one of the smartest trades you make this year. The International Energy Agency predicts that oil will rebound to $85 per barrel this year. That’s a 70% gain on where it is now.

This is the time to invest in oil

We stayed out of investing in oil companies as the oil price soared to unrealistic levels in the first half of 2008. But that has totally changed. The price of oil has now fallen 66% from its peak last summer. And it is now unrealistically cheap.

The big question for investors is how to profit from this. You could invest in the big oil companies like Shell and BP . They are trading at very reasonable valuations right now of about five times last year’s earnings. These aren’t bad investments right now.

But these companies have a big problem. They’re finding it harder to replace their oil reserves. Increasingly, the big oil producing countries are handing over their oil reserves to their state-owned oil companies. That leaves the private oil companies to fight over the scraps.

That will hit the giant oil companies the hardest. Because they would have to make a truly major oil discovery to make a big difference to the size of their reserves. And the chances of that happening are going to get smaller in the years ahead.

Then there are the junior oil companies. A significant oil discovery can send their stock prices soaring. Triple digit gains when that happens aren’t uncommon. But many of them are in a bad way right now. Oil exploration is an expensive business. So the combination of lower oil prices and the freeze in banking lending is hitting them hard.

The potential profit from investing in a small cap oil company that strikes oil can be huge. But so are the risks. I doubt that many of the oil companies with less than $1 billion in market value are going to survive this downturn. So this isn’t a gamble that I would take.

Instead, on my Profit Hunter investment service, we have focussed on the mid-sized oil companies. These companies have the financial strength to get through this downturn. But they are still small enough to benefit massively from new oil discoveries. This is where the real money is going to be made in the next oil bull run.

Source: Get In On The Trade Of The Year

This from Investment U:

When I started driving, gasoline still contained lead and regular was selling for 29 cents a gallon. My father remembers 10 cents a gallon.

While it’s highly unlikely we’ll ever see those prices again, you could see gasoline below $1 a gallon, and it just might hit $0.75 a gallon. It might not be in time for Christmas, but the Easter Bunny might leave it in your Easter Basket.

That’s not just wishful thinking on my part: The International Energy Agency’s (IEA) most recent monthly forecast (released just yesterday) indicates year-over-year global oil demand will shrink in 2008 for the first time in the last 25 years.

Why? Developed nations are skidding into recession and emerging nations have hit the brake pedal on economic growth. And when the United States – by far the largest oil user in the world – cuts back, the ripple effect is devastating to producers.

Oil-laden tankers are backed up at U.S. oil unloading terminals, waiting to unload. At the same time, the nation’s most recent oil inventory report shows that storage tanks are brimming with crude oil, gasoline and heating oil. But that doesn’t mean there’s no money to be made here. In fact there are a number of opportunities to profit in oil right now.

Global Oil Demand – OPEC Cuts Production

OPEC is scrambling to cut production of oil. Chances are good that they won’t cut far enough or fast enough. Supply destruction will continue to lag demand destruction for the foreseeable future. And that sets the stage for a continued softening of pump prices as well as heating oil.

And then, of course, there will be the cheaters: You can expect rogues like Venezuela and Iran to continue to pump and sell as much oil as they can possibly suck out of the ground, since there is little production accounting oversight on the part of OPEC. It was a big problem the last time we had an oil crisis back in the 1970s.

How low could it go? Merrill Lynch is on record predicting $25 a barrel. It has a fairly good chance to go even lower, before supply cuts catch up with global demand slowdown, which is still occurring.

How long will it stay low? It’s hard to say, but any increase in global economic growth would provide a boost in demand and a subsequent rise in the price of oil. Current economic forecasts, while mixed, don’t show much of an increase until the latter half of 2009 – or even early 2010.

For now, though, demand is still falling, with October alone registering a steep 8.3% decline in crude prices. Simple math says that if crude prices are cut in half from here, so, too, could the price at the pump. Car dealers with rows of gas guzzling SUVs on their lots would be jumping for joy.

But just like $147 a barrel was artificially high, so, too, would be $20 a barrel on the low side. As prices begin to stabilize in late 2009 or early 2010, oil will likely return to a trading range of $80 to $100 a barrel. It would begin to slowly rise from there as the global economy climbs out of recession and economic growth rekindles.

2 Places to Put Your Gas-Savings Cash

Naturally, there are a few ways to put your growing mound of gas-saving cash to work:

• Shares of Autonation, Inc. (NYSE:AN), one of the largest car dealer networks in the country, are off 50% from their 52-week highs. Any sustained reduction in the price of gasoline will likely have a positive impact on car sales, particularly in the hard-to-move segments of the market like low-mileage SUVs, vans and pickups.
• A more direct way to play this would be to pick up a few shares of Valero Energy Corp. (NYSE:VLO) that’s been bouncing along in a tight trading range of $15 to $20 a share since mid-October. Its profits are tied directly to the spread between the price of crude oil and the price of refined products (known as the crack spread). A widening spread bodes well for refiners like Valero.

While I’m not sure I’d be running out to buy a big SUV anytime soon, it’ll certainly be easier on the wallet when pulling up to the pump. But don’t get too comfortable with cheap gasoline. Prices will eventually revert to their natural mean. And in the case of oil, it will eventually be higher.

Source: Global Oil Demand: Are You Ready for Gasoline Under a Buck a Gallon?

This from Investor’s Daily Edge:

Strange things are going on in the oil patch. They could help make Obama look good. But what’s good for Obama may ultimately give the U.S. its biggest energy headache yet.

As oil continues its dizzying fall, cheap energy and gas will allow Americans to spend more on other things. But oil companies aren’t happy and are reacting in different ways.

Some, like ExxonMobil (NYSE:XOM), are continuing their spending plans. For ExxonMobil, that would be a tidy $25-30 billion a year. Most of the other oil majors are cutting back – especially on spending in higher cost and/or non-conventional oil development initiatives.

Having just enjoyed another quarter of record or near-record breaking profits, these companies certainly have the money to spend. Oil companies may not be as vulnerable to the economic crisis and credit crunch as car manufacturers, but the good ol’ days are rapidly coming to a close.

Oil for the year is still averaging over $100 a barrel. So on the surface, oil companies are doing fine. But dig a little deeper, and some cracks begin to show. Until recently they’ve been fighting rising costs. Costs of raw materials like steel and cement have now fallen back to earth. But labor and drilling remain stubbornly high.

And production in existing fields is declining faster than expected. For example, oil is flowing from the North Sea at a clip of 1.7 million barrels per day. By 2030, it’ll drop to only 500,000 barrels. Production from existing fields in Alaska, Russia and Mexico are also suffering faster-than-expected declines.

A new report from the International Energy Agency says that oil companies will have to spend $360 billion per year just to keep this rate of decline at 6-7 percent over the next two decades. Otherwise, rates will climb over nine percent.

That’s a lot of money to spend on a losing battle. All that spending won’t reverse rates. It will just slow down falling production.

The same agency noted that oil output outside of OPEC countries has plateaued already. And it will begin to drop in a few years.

There will be individual companies in the West that will be increasing production – especially companies working the smaller oil plays. But the future for the bigger oil companies and for western oil companies as a group is grim.

With each passing quarter, their ability as a whole to maintain production levels will come under increasing pressure. Raising production is simply off the table. Ain’t gonna happen.

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INTERNAL ENDORSEMENT Most People Don’t Even Know this Powerful Strategy Exists…! One senior analyst told Bloomberg that companies which issue this “Red Flag” might as well “hold up a sign that says liquidity problem”. And nearly every time a corporation does this for the first time in a bear market, their stock price plummets within the next 90 days. Just understand that what you’re about to see could have predicted with 92% accuracy that a stock in the S&P 500 index would fall within 90 days. And you could’ve banked gains of 187%, 134%, even 291% as the stocks drop. So what is this ‘Red Flag’? Why does it lead to lower stock prices? And how can you find out which companies may be on the verge of doing it? I’ll Explain Everything to You Here.

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It would seem that Obama’s unfriendly stance toward oil companies (like plans to tax windfall profits) is particularly backward-looking. Oil companies are in a heap of trouble. Oil companies haven’t figured out how to counteract declining prices combined with declining production.

What can they do? They could follow Royal Dutch Shell and put more money into developing non-conventional oil resources, like the vast reserves of oil sand in Canada. Shell (NYSE:RDS.A / RDS.B), along with Suncor (NYSE:SU), Petro Canada (NYSE:PCZ), Imperial Oil (AMEX:IMO) and a half-a-dozen other companies are delaying new projects or cutting back on their spending in Canada, though.

The problem? Some of these oil companies swear it’s more a concern over rising costs than the falling price of oil. But c’mon. The Canadian oil sands are a big money-maker when oil was at $145 a barrel. It would be a profitable operation even with oil at $100.

But at $65? Or $55? That’s cutting it far too close for comfort.

Here’s the kicker, though. Any increase of oil production will have to come from OPEC countries. Countries in the West – including the U.S., of course – will be more dependent than ever on OPEC to satisfy their oil thirst.

And there’s not a thing an Obama presidency can do about it.

Even if he pushes hard on energy conservation and using more alternative energy resources, it’s not going to change the fact that availability of our most important fuel will depend on OPEC countries making timely decisions on raising output.

Over the long run, moving away from oil is a good move. But there’s only one thing that will keep the price of oil down in the short run and that’s a deep and prolonged global recession. Once countries like China and India (where most of the growth in oil demand will come from) start to bounce back, the price of oil will begin a long climb up.

And given that oil companies in the meantime will be making much less money and, as a result, spending much less money on developing new production, a new round of oil shortages will develop…

That is, unless OPEC countries raise production enough to keep prices low. And that’s a non-starter if I ever saw one.

So expect oil to climb to new heights after a 2-3 year pause that has just begun. It’ll easily pass the previous high of $147 reached this July. It should hit $200 and could go higher.

The big oil companies in the West will benefit greatly, even if their production is flat-to-falling. And those big bets that companies like Suncor, Nexen (NYSE:NXY), Opti Canada (TSE:OPC), and Petro Canada have made in the Canadian oil sands will be looking a lot better.

You may want to keep in mind that among the super-majors, the company with a big lead in non-conventional oil development is Royal Dutch Shell. It’s not the best-looking super-major now. But by the time Obama is campaigning for a second term, that could well change.

Source: Can Big Oil Find Ways to Grow?

This from Taipan Daily:

The petrocrats were richly rewarded as crude oil climbed to new heights. Now a sharp decline in the price of oil threatens to tear their world apart. A time for drastic action could be at hand…

Today I want to talk about a situation that feels like a ticking time bomb – a time bomb that could go off sooner rather than later. It starts with this chart…

After climbing to nearly $150 a barrel earlier this year, the price of crude oil has fallen. A lot.

Crude’s big drop is good news for consumers, who won’t have to spend as much on gas and groceries. US prices at the pump recently fell ten cents to $2.92 a gallon, according to the AAA auto club. When the cost of fuel falls, the cost of transported goods falls too.

It’s also good news for the Federal Reserve. Thanks to falling oil prices – and falling commodity prices in general – the Fed doesn’t have to worry as much about inflation these days. They can flood the system with paper money to their heart’s content, knowing that the “early warning system” of rising commodity prices has been shut down. (At least for now.)

Big Trouble for the Petrocrats

In sharp contrast, falling oil is very bad news for men like Vladimir Putin and Hugo Chavez. You could even say it’s a flat-out disaster.

One or both of these men may have to take drastic measures in the only way they know how… and they may have to do it soon.

First a little explanation: As you likely know, these “petrocrats” were huge beneficiaries of the oil price run-up. Both had the good fortune of timing their political rise to a period of fast-rising oil wealth.

In Russia, Vladimir Putin amassed vast amounts of power, money and prestige as crude climbed to great heights. In Venezuela, Hugo Chavez used his gusher of funds to bribe the citizenry and spread influence throughout Latin America.

But that was then, and this is now. With the price of crude nearly cut in half from its 2008 highs, the roof is caving in on both men’s heads.

Evaporating Oligarchs

We’ll take a quick look at Russia first.

Though Putin has become extremely popular with average Russians, his real power base is concentrated with the oligarchs and the siloviki.

The oligarchs are Russia’s new class of billionaires — men who amassed great power and wealth in the chaos and turmoil of Yeltsin’s Russia in the 1990s. The siloviki (a Russian term) are the kingmakers and the lever pullers… the men in the shadows who decide Russia’s fate.

The two groups are deeply intertwined. The oligarchs have the money… the siloviki have the power… and Putin holds court over both.

Now, as the price of crude declines, the oligarchs’ fortunes are falling apart. As the New York Times observes, “perhaps no community of the super affluent has fallen as hard, or as fast, as the brash Kremlin-connected insiders whose wealth was tied up in the overlapping bubbles of the Russian stock market, commodity prices and easy credit.”

The numbers are staggering. Bloomberg calculates that the top oligarchs – the 25 richest Russians on the planet – have lost a collective $230 billion over the course of the recent market decline. (This is partly due, too, to a Russian stock market crash. Russia’s benchmark stock index, the RTS index, is down more than 70%.)

Effectively gain 12 times your money the second you buy this stock And likely as much as 190 times your money over the next few years. Don’t scoff — it has happened before under almost the exact same circumstances that one small petroleum company is now in prime position to cash in on. But you’ll have to move fast to ride along for 190-fold gains (or more).

Too Much Leverage, Comrade

To make matters worse, many of the oligarchs ran their affairs as if they were one-man investment banks. Huge quantities of leverage and debt were the norm. During boom times, it was no big deal for an oligarch to borrow many multiples of his net worth. The borrowed capital would then be put to work in even more speculative ventures. Now all that leverage is killing them.

This is a deadly serious problem for Vladimir Putin (a man reputedly worth tens of billions himself) because it leaves his power base badly fractured. If the oligarchs go down the drain, Putin could too.

Russia as a country is in a little better shape, thanks to a huge currency surplus war chest. Russia has upwards of $530 billion in reserves by some estimates. That’s rainy day money that can be spent as needed to keep the people calm and Moscow on its feet.

But none of that will matter to Putin if his hidden power network, a large part of which depends on the oligarchs, is destroyed. If something isn’t done to stop the bleeding, Vlad could wake up to anarchy in the Kremlin… or a new challenger risen up from the ranks… or even a dollop of Polonium 210 in his borscht.

Too Much Credit, Amigo

Hugo Chavez, Venezuela’s fiery leftist President, has arrived in a similar place by a different route.

Chavez didn’t make the mistake of leveraging up or staking his power on a group of rich insiders. Rather, he made the mistake of giving away his most precious resource for free… forgoing hundreds of billions in revenues in an aggressive effort to buy friends.

As it turns out, Venezuela only has one big customer who pays full price for oil: the United States. Most everyone else gets it at a huge discount.

In 2005, Chavez formed something known as the “Petrocaribe” club. He might as well have called it the “Chavez will bribe you to be his friend” club, for reasons you’ll soon see.

The 18 Latin American countries in the Friends of Chavez club – er, excuse me, Petrocaribe club – suck down roughly half the oil Venezuela produces. (That’s 1.2 million barrels out of 2.4 million barrels per day total… a 25% decline since Chavez rose to power.)

The upshot is that Venezuela, a country whose output should be rising but is instead declining, gives away half its oil for next to nothing. Chavez charges Petrocaribe members 30 percent of the market price up front, on 90-day terms, with the balance paid in installments spread out over 25 years.

Thirty percent down, 90 days same as cash and a 25-year repayment plan. What a deal!

If that deal sounds like a steal, that’s because it is. Chavez fancies himself a great liberator… the hope and salvation of Latin America… and he will grease the palm of anyone who agrees with him and stands against The Evil United States. (Never mind that The Evil United States is Venezuela’s only big customer paying cash on the barrelhead.)

Venezuela on the Precipice

Not only does Chavez give away half Venezuela’s oil to outsiders, he gives it away at home too. Thanks to mass subsidies, Venezuela has the cheapest gas prices in the world. You can fill up for your tank for twelve cents a gallon in Caracas… and that’s only the tip of the subsidy iceberg.

Not to put too fine a point on it, Chavez is a self-styled “revolutionary” with no concept of basic economics. He assumed the oil gusher would last forever, and spent money accordingly.

As if all the spending weren’t enough, Chavez has grossly neglected the maintenance and upkeep of PDVSA, the state-owned oil company. Rather than investing in technology and engineers, Chavez has ordered PDVSA to waste its time on hare-brained community schemes. He has installed political cronies in important positions, driven out key employees, and generally let the whole apparatus go to pot.

Now, like Putin, the falling price of crude is delivering the mother of all wake-up calls. Various sources estimate that if oil stays below $80 for long, Venezuela will have trouble paying its bills. Chavez is the type of guy who needs a frying pan to the face to see the error of his ways… and he is about to get it.

An Old Play From the Dictator’s Handbook

So what are Putin and Chavez going to do? Both men are in dire straits, and a ramp-up in oil production is not the answer.

Expanded oil output won’t help the oligarchs at this point. They need a higher price per barrel to shore up market values on their battered and bleeding holdings. And Chavez couldn’t expand production even if he wanted to. (Mazhar al-Sheridah, an oil expert with the University of Venezuela, says his country will need $32 billion and five years’ construction time to raise output.)

One option for both men is to lean hard on OPEC, and hope a round of deep cuts does the job of pushing oil higher. We’ll talk more about that in a minute. But there is another, older, more reliable play too… one that’s proven its effectiveness time and again in recent years.

Putin and Chavez can stir up turmoil on the cheap.

If there were such thing as a “dictator’s handbook” (or maybe a petrocrat’s handbook), you would find this play early on in the list of basic maneuvers. When things are going to hell at home, distract the populace (and the world) by starting a firestorm elsewhere.

It’s hard to solve a pressing problem with long-range tools like diplomacy and fiscal policy… but much easier to light a match and drop it in a drum of kerosene.

Return of the Fear Premium

For the past few years, crude oil traded with a hefty “fear premium” built in. The thought was that, with the supply and demand balance so tight, even the smallest conflict or disruption could have big ripple effects on the price and availability of oil.

Now that the markets are worried more about slowdown than runaway global growth, the fear premium in oil prices has gone away. If anything, it’s been replaced by a new deflationary mindset as “demand destruction” takes hold.

But “fear in the hearts of men” is back in the ascendant… in the hearts of Putin and Chavez anyway. As the walls crumble down around them, both could easily be on the verge of panic. Both know that oil prices must move higher if their regimes are to be saved from oblivion. And both are willing to do whatever it takes to save their own skins.

This is why falling oil is a geopolitical time bomb. Putin and Chavez could already be considered two of the most dangerous men on the planet. Now both men find themselves backed into a corner like wounded animals. And remember, the most dangerous animal of all is not the one hunting for its supper. It’s the one fighting for its life.

Whither OPEC?

We can’t know what’s taking place behind the scenes… what Putin and Chavez are saying to their closest advisers in their most urgent moments and so on. But we can know there’s a real powder keg brewing here. And OPEC is potentially a part of that mix too.

All I know is, if I were a ruthless petrocrat trying to save my regime from a downward spiral in crude oil prices, I would think big. I would try to set off the biggest, most explosive tinderbox possible, just to make sure my message gets through and the new “fear premium” takes full effect.

And if I could time that action with the actions of another powerful group, so much the better. That would just mean more bang for the geopolitical buck.

That’s where OPEC comes in…

In case you weren’t aware, OPEC is meeting later this week to discuss an emergency cutback in crude production. (Russia is not officially a part of OPEC, but Venezuela has long been a member.)

The market has been a tad jittery ahead of the OPEC meeting, but general expectations seem tame. Wall Street analysts are predicting a one million barrel per day production cut. There is also a general consensus that one million barrels won’t be enough to keep the price of oil from falling further.

Remember, too, that it isn’t just Russia and Venezuela who are hurting here. Many of the OPEC countries – not least Iran – have a lot riding on a high oil price. I suspect that OPEC will have to engage in a little “shock and awe” this week if they really want to get their message through. In 1973 they really took the gloves off, and we saw what happened the rest of that decade. Who’s to say they won’t do it again.

So there you have it. Mix geopolitical TNT with a paper currency fuse, and you’ve got a good chance of seeing energy prices spike higher before too long. Possibly much, much higher.

Source: Falling Oil is a Geopolitical Time Bomb

There are great wealth-creating opportunities in today’s miserable markets, says Andrew Snyder. Take oil, for example. The black goo is on a slippery slope towards $50 a barrel, and no OPEC production cuts are going to stop this in the short term. Andrew says the UltraShort Oil and Gas ProShares ETF (AMEX:DUG) is the best way to profit from the oil industry’s downturn.

More from Today’s Financial News:

Our good friends at OPEC are up to their same old tricks. Oil prices are dropping so the cartel is meeting later this week to discuss a cut to pumping quotas. It is a last-ditch effort to try to keep crude prices from plummeting all the way to $40.

The cartel is expected to reduce production output by as much as two million barrels per day, which would be considered a major cut. There are even rumors that Russia may reduce its output as well. Remember, there are scores of countries that are now dependent on huge sums of “oil” money to fuel their economy.

If we see prices go much further below today’s levels, we are going to see several countries buckling to their knees. The same nations that gouged us for the past few years are in desperate need of help. I cannot wait to see them shed some tears.

Let ‘em fall

Really, all that OPEC is trying to do this week is change investor sentiment. We all know the organization’s price-fixing scheme has been utterly unsuccessful in the past. Greed, corruption, and a powerful producer force outside of OPEC continue to allow the free market to price a barrel of crude.

But if OPEC can sway investor sentiment, make us think demand is not dropping all that much, and make the world believe oil prices truly deserve to be high, then its mission later this week will be a success.

Fortunately, OPEC does not have the slightest chance of keeping oil prices artificially high. Sure, this week prices may not make the drops we saw over the past few weeks. But the decline will continue. We will see valuations drop all the way down to the $40 range.

I know the world has evolved into a market that demands instant gratification, but oil prices will not plummet $30 overnight. It will take some time. But over the next few months and quarters as we see more examples of a worldwide economic recession, crude demand will slip, supply will increase, and prices will drop.

Last week, I recommended that readers take a short position on oil. That way, as prices fall they can profit. The best way to take advantage of the fall is through an exchange-traded fund (ETF) like the UltraShort Oil and Gas ProShares (AMEX:DUG).

The fund is designed to move inversely to crude prices at a 2-to-1 ratio. In other words, for every percentage point crude prices fall, this ETF will increase in value by two percent. It is a great way to take advantage of the oil industry’s downturn.

Another great aspect of ETFs like this one is the ability to buy and sell options based on it. For savvy options investors, there are all sorts of profit and hedging opportunities.

If you are a Hot Stock Confidential subscriber, do not be surprised if you hear about one of these highly profitable plays in the next two days. Last week, we made 85% gains in just a day on Altria (NYSE:MO). We might just reap some more gains from the oil industry.

Oil prices are going even lower. Take advantage of the situation and put some profits back in your portfolio.

These are some highly volatile times for the energy industry and the market as a whole. Pay attention to what is going on, and you have a shot at some great, wealth-creating investments.

Source: OPEC cuts create fantastic buying opportunity

Greg Guenthner isn’t sweating it.

Oil prices have been caught up in widespread panic selling of recent months. It remains a scarce and essential commodity. This means it is only heading in one direction over the long term.

Greg recommends following oil guru Richard Rainwater’s cue and buying into oil stocks with both hands.

This from Penny Sleuth:

When the markets go to hell, it’s all too easy to become caught up in the moment. Fear is a powerful emotion. We all witnessed this firsthand as the market’s decline accelerated. As the markets continue to crumble, many investors lose sight of their goals. They sell positions indiscriminately; they become irrational.

The sell-off we’re experiencing right now is global. And aside from some safe-haven gold buying, no stock or commodity has avoided the bears. That’s why we’re looking at a scarce and valuable resource for steady long-term gains: oil.

One energy guru has recently made a big bet on oil.

He bought back shares of Exxon (NYSE:XOM), ConocoPhillips (NYSE:COP), Pioneer Natural Resources (NYSE:PXD), BP (NYSE:BP) and Statoil (NYSE:STO) — all at rock-bottom prices. We say he bought these shares back because, in a prescient move, this sage sold off every oil stock he owned in May…back when oil was sitting atop $129 per barrel.

A Fresh Oil Investment

Richard Rainwater knew he would be a bit early to the party — and probably miss the top — when he sold his oil investments back in spring. But with a stellar track record including massive gains betting on everything from hospitals to cell phones, he knew gains from his $300 million invested in oil stocks and futures were in jeopardy.

“I just felt that America was not ready for $4 gas and we would see a pause here,” he told Time magazine in June.

Rainwater pulled his billions in profits just before oil’s peak in July. Now, he’s ready to do it all over again, spreading his millions across Exxon, ConocoPhillips and other big-name petroleum pushers.

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Oil at $150 per barrel and gasoline at $8 a gallon or more…

The oil is running out. It’s as simple as that.

But that’s not what you hear from so-called experts. If you ask government officials, our intelligence agencies and even powerful Wall Street financiers, they tell you the opposite.

They say the Saudis could quickly double their oil production from the current level if they wanted to. And given a few years, they think the Saudis could produce four times as much oil as they do now.

They are dead wrong. Check it out here…

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Overwhelming Demand Will Prop Oil Prices

Rainwater’s outlook is simple: Increased worldwide demand will continue to push the oil price up in the long term. Rainwater’s not alone, either. Analysts and industry experts — like oil tycoon T. Boone Pickens and OPEC President Chakib Khelil — have been making it perfectly clear…oil’s on the rise again.

On July 11, 2008, oil made a record ascent to $147.27 — a 123% jump in only 12 months.  With oil sitting around $80 right now, oil aficionados like Pickens are bracing for the run-up to come. “The Saudis claim they have more oil; they don’t. The president wasted his time to go to Saudi Arabia, to say, ‘Give us more oil.’ They can’t give any more oil…they’re stacking up the money as fast as they can stack it up,” warned Pickens in an interview with CNBC.

The allure of oil is hard to refute.

With finite supplies and unquenchable demand, it’s clear why many investment houses put oil above $200 in the near future.

According to Pickens, it’s just a case of an oil-hungry economy overwhelming producers: “Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million. It’s just that simple. It doesn’t have anything to do with the value of the dollar.”

Now is the time to buy oil. The third quarter of 2008 saw the largest drop in oil prices in 17 years.

Now with OPEC slashing its production outlook for the rest of 2008 and 2009, it’s unclear just how long prices will be able to stay under $100.

Source: Prevailing in the Midst of Paranoia

But Smart Commodities UK editor Garry White says a number of nuclear power projects are already underway in other parts of the world. India plans to build between 18 to 20 new nuclear plants over the next 15 years. Even the Middle East is shifting to the atom for its future energy needs.

Nuclear plants are also proven to be effective at water desalination. This will be vital in emerging markets, where populations are rising rapidly.

This is from Fleet Street Daily:

He [Bodman] made the comments on the same day as the US senate signed off the nuclear co-operation deal with India. It was also a few days after Russia agreed to help Hugo Chavez with a nuclear programme. But if you want to feel assured about the prospect for nuclear power, just have a look at what is going on in the Middle East. A place awash with petrodollars.

There are two main reasons for the rush to nuclear power in Iran and Saudi Arabia. And neither of them is the pursuit of nuclear weapons.

The first of these is the fact that they don’t have as much oil as everybody thinks. The second is water.

Let’s take a look at Iran’s reserve situation.

The simple fact is that Iran HAS to develop nuclear power because the country is running out of oil. Iran’s “massive” oil reserves are a big, fat lie.

One of the people who made that reality crystal clear to Iran’s leaders a few years ago was Dr Ali Morteza Samsam Bakhtiari.

Dr Bakhtiari started working for the National Iranian Oil Company back when the Shah was in power. For 36 years he worked for the company in a variety of senior positions until he retired.

This is what he told President Mahmoud Ahmadinejad:

“As for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay.”

The current estimate of Iran’s reserves is 136 billion barrels. That’s the second highest oil reserves in the Middle East after Saudi Arabia. Dr Bakhtiari thinks this should be closer to 36 billion barrels.

I believe that Ahmadinejad needs to go nuclear because his country’s oil industry is struggling to keep its oil production at close to 4 million barrels per day. And it’s only going to get worse.

That’s why Iran needs nuclear – and that’s why Ahmadinejad will never give up his nuclear programme.

The second reason is water.

The population in the Middle East is set to soar in the next 15 years. In Saudi Arabia, almost 40% of the population is under the age of 14. It has a fertility rate of 5 children per woman. The country is set for a massive population explosion at a time when its infrastructure is creaking.

The Kingdom is already the world’s largest producer of desalinated water. It currently has 27 desalination plants which provide 70% of its drinking water requirement. But it will need more. Much more.

That’s where nuclear power comes in.

Desalination is an extremely energy-intensive process, but nuclear plants can be used for the duel purpose of producing electricity and desalinating water.

Nuclear desalination is a proven technology. Kazakhstan produced water by nuclear desalination for almost 30 years until its reactor was decommissioned in 1999.

The country’s BN-350 fast reactor at Aktau successfully produced up to 135 MW of electricity and 80,000 m3/day of potable water over 27 years. Around 60% of its power was used for desalination.

Then there’s Japan…

It has ten desalination facilities linked to pressurised water reactors operating for electricity production. They have yielded 1000-3000 m3/day each of potable water.

India has also got in on the act. In 2002 it set up a demonstration plant coupled to twin 170 MWe nuclear power reactors at its Madras Atomic Power Station.

So, Mr Bodman needs to be a little less US-centric when talking about the future of nuclear power. The world’s going nuclear whether the US does or not. There’s plenty of money in the Middle East, in Venezuela, in India and in China.

Source: Iran Needs Nuclear because it’s Running Out of Oil

Despite earlier pledges to hold oil output steady, the Organization of Petroleum Exporting Countries (OPEC) yesterday (Wednesday) announced that it would cut production by 520,000 barrels per day in an effort to “strictly comply” with the production quotas set last September. However, Saudi Arabia, the cartel’s largest and most influential member has indicated otherwise. The cartel, which controls 40% of the world’s oil exports, pointed to such factors as tumbling demand, greater supply, the dollar’s recent rally and an easing of political tensions – all of which have contributed to a 30% drop in oil prices over the past nine weeks.

“All the foregoing indicates a shift in market sentiment causing downside risks to the global oil market outlook,” OPEC said in a statement.

In its monthly report, released today, the International Energy Agency lowered its 2008 forecast by 100,000 barrels to 86.8 million barrels a day, and the 2009 estimate by 140,000 barrels to 87.6 million barrels a day.

Still, the cut in production contrasts sharply with statements made by Saudi Oil Minister Ali al-Naimi prior to the meeting. And, according to the New York Times, Saudi officials have made it clear that they will not curtail production regardless of what the cartel says publicly.

“The Saudis made their strategy clear in informal talks and briefings with oil industry analysts and reporters, but as is their custom they would not speak for attribution because they did not want to appear to undermine a collective decision by OPEC that they endorsed publicly,” the NY Times said in an article on its website yesterday.

Saudi Arabia is responsible for most of the surplus oil production currently on the market, as the country acted unilaterally to boost its output by 500,000 barrels per day when oil prices soared uncontrollably in the first half of the year. Riyadh was very concerned that prices higher than $100 a barrel could erode demand in many of its most reliable markets, including the United States.

“We have worked very hard since June’s meeting to bring prices to where they are now,” al-Naimi told reporters Tuesday. “I think everything is in balance – inventories are in a healthy position.”

OPEC is pumping approximately 2.18 million barrels a day more than it was in 2007. Saudi Arabia is currently producing about 9.5 million barrels of oil a day, 600,000 barrels a day more than its official OPEC quota.

Light, sweet crude for October delivery fell 24 cents yesterday to settle at $103.02 a barrel on the New York Mercantile Exchange.

Source: Saudi Arabia Hesitant to Join OPEC in Production Cut

No Spike in Oil Price Following IEA “Third Oil Shock” Announcement

By Dan Denning

The International Energy Agency (IEA) gave the oil market a boost when it said supply would remain tight and that the world was in the middle of its third oil shock. Thanks for the newsflash IEA.

“With oil prices hitting 140 U.S. dollars,” said IEA Executive Director Nobuo Tanaka, “we are clearly in the third oil shock, with prices affecting economic growth, truck drivers are going on strike. Airlines are closing down.”

The IEA said high prices would discourage demand for oil in the short-term, but in the medium-term, “demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture.”

The IEA remains in a remarkable state of delusion about the world’s ability to increase oil supply. It projects that global demand will grow from 86.8 million barrels per day this year (with supply of around 88mbpd) to 94.14mpbd in 2013. That’s an increase in global production of 8.5%.

Let’s see. Where will that come from? Well, assuming there is no decline in current production, you could double Iraq’s production, throw in 2mpbd from the Saudis and their spare capacity and new fields, chuck out Chavez and get Venezuela humming again, and bring on-stream a lot of the deep-water projects…and maybe, just maybe you’d get there.

Christophe de Margerie, the CEO of French oil company Total (FP), says 94mpd is an optimistic forecast in ten years, and probably the peak anyway. “We will have to fight against the natural decline of (present) oil fields,” he said “It will not go smoothly.”

You can fight against some things…love handles, injustice, heavy traffic. But if you pick a fight with something like gravity, you’re going to lose every time, and probably injure yourself. The natural decline in the production on an oil field can be “fought” with some methods to enhance recovery. But depletion is depletion. They don’t make Botox for oil fields.

In any event, the IEA announcement did not create a super spike in oil. This leads us to believe oil may be running out of gas, at least in the short-term. Event-driven price increases are almost all played out, barring an Israeli attack on Iran. If that happens, all bets are off. Keep in mind, though, that oil prices actually fell when the first Gulf War began. They did the same in 2003. We’re not saying the same would happen this time, especially if the Iranians tried to clog up the Strait of Hormuz.

But the real reason prices may have topped out is that the world is having a hard time coping with $140 oil. Could it live with $200 oil? Who could afford it? At its current price, oil is killing the airlines and destroying truck drivers. Also, gold seems to be catching up with oil as the most attractive anti-inflation investment alternative.

Source: No Spike in Oil Price Following IEA “Third Oil Shock” Announcement

BP vs. OPEC Smackdown

By Dave Gonigam

Another week, another record-high oil price. And it’s only Monday. Fingers of blame are pointing with more frequency and animation. And still, the game of denial goes on.

Over the weekend, OPEC chief Chakib Khelil gazed into his crystal ball and came up with $170 oil by year’s end. His culprits of choice: a falling dollar and “political conflicts,” i.e., more saber-rattling between Tehran and Washington.

Well, that’s no doubt true as far as it goes, but then the OPEC guys go off the rails when, according to this article, “OPEC ministers generally say that oil output is sufficient, even as Saudi Arabia, the biggest producer, pledged to pump an extra 200,000 barrels a day next month to calm the market. OPEC has argued that speculation and the weak dollar are behind the record prices.”

Did it escape the OPEC ministers’ attention that a rebel attack in Nigeria took 200,000 barrels a day of production offline, zeroing out Saudi Arabia’s magnanimous gesture?

Oh, and those darn speculators. OPEC loves to blame them, and has blamed them, going at least as far back as $92 oil eight months ago.

BP (NYSE: BP)chief Tony Hayward is having none of that, calling the notion of speculators driving up the oil price a “myth.” More relevant, he told the World Petroleum Congress, is that “supply is not responding adequately to rising demand.” But then Hayward goes off the rails when, according to Reuters:

He added that politics rather than geology was the reason. “The problems are above ground not below it,” he said.

Now it’s true enough, as Hayward complains, that OPEC nations don’t like having Western oil majors like BP working OPEC oil fields the way they did in decades gone by. But the fact oil-rich nations are giving BP less access than they used to doesn’t change the fact that the world’s biggest oil fields are in decline, and new ones aren’t coming online nearly fast enough to pick up the slack. I can understand why OPEC doesn’t want to fess up to that reality, but why is Tony Hayward so reluctant?

Source: BP vs. OPEC Smackdown