But there are others who believe in the “Peak Oil” argument, the ultimate end-game, like a Suburban crushing a Subaru at the end of a long hill. Peak Oil enthusiasts will point to long lists of numbers, detailed maps of known reserves, past prognosticators of genius, and declare with tinfoil-hat fervor that “we are running out of oil.”

I’ve read these books and listened to the speeches. The idea that there is a finite amount of oil on the planet, and we are near the point where we will extract less in the next hundred years than we did in the past. Makes sense to me, as does the business cycle. I don’t know if the hundred-year history of the oil cycle is over. There is always a “this time it’s different” ideology at the peak. But then again, sometimes, it is different.

What we do know — what isn’t in dispute — is that oil is expensive, and that by all accounts the easy oil has already been found and is being extracted at a furious pace.

And this has led the industrial countries on a desperate search for this ever-scarcer commodity.

Russia, China, India, Brazil, Canada, Europe and the U.S. are fighting an anxious and diminishing struggle for the last of the world’s hydrocarbons. Russia is sending submarines to plant national flags at the bottom of the Arctic Ocean. China has moved aggressively to acquire oil holdings from Kazakhstan to Somalia. India has gotten in bed with the genocidal regime of the Sudan to the tune a $45 billion natural gas pipeline. The U.S. is spending trillions in treasury and thousands in lives to make sure the oil flows from the Middle East.

The Guardian of UK fame recently reported that “money is no object as the big players grab what is left of a diminishing resource.” (This was after China’s Sinopec paid $1 billion for the right to explore for oil in deep water off Angola.) Just a few years ago, such a deal would have sold for a mere $35 million. But competition is fierce over the last remaining frontiers where vast quantities of oil might be found.

If you add Latin American governments and Russia’s success at renationalized oil and gas assets, and the fact that many reserves in the Middle East are off-limits… you have a situation where the oil majors are going to the politically difficult and geographically inhospitable locations to find oil.

The oil game isn’t over by a long shot. One successful investment strategy is to find oil assets selling on the cheap and buy them before the big players show up.

I’ve discovered one such place off the cost of South America. For seven years a border dispute has stopped the drilling in what the United State Geological Survey (USGS) calls “the second-largest unexplored oil reserve in world.”

It’s a place we like to call the Gunboat Basin. It’s about 100 miles off South America’s coast. The USGS estimates that this oil basin contains 15 billion barrels of oil as well as 42 trillion cubic feet of natural gas. This location is one of the most sought-after oil regions on the planet. Not only is it a strategic replacement to Venezuela, but it is also brimming with precious crude. Only one problem: For the last seven years, the oil has been locked down and under armed guard!

But over the summer, the United Nations was able to hand down a ruling that averted a war and will benefit all parties. As I write this, seismic explorer vessels are on their way. Exxon Mobil and other large oil companies have formed partnerships.

There is a perfect way to play this which involves one small $3 company that owns the offshore rights. To protect my paying subscribers of Crisis Trader, I cannot reveal the name of this micro-cap explorer that trades on the Toronto Venture Exchange. However, it does show you how persistent research can turn up the kind of companies long overlooked by Wall Street — that can make investors a handsome return.

This $3 company is a Canada-based oil and gas explorer with an interest in 9.8 million acres (7.7 million net) offshore Guyana, South America, an area ranked second among the world’s under-explored basins. Exploration in the basin has been deferred by each of the offshore operators — Exxon and Repsol — as well as this $3 company which had been forced off its Eagle location by Surinamese gunboats in June 2000.

This tiny oil and gas exploration company has funded $8.9 million, the majority of Guyana’s legal expense, for resolution of the maritime border with Suriname by the International Tribunal on Law of the Sea. Oral hearings were first heard in December 2006 and a binding decision on the maritime border was established by the U.N. on September 20, 2007.

It has been agreed to by both Guyana and Suriname. Furthermore, it favors the holdings of this company that I had recommended to my readers. Guyana is preparing for renewed exploration by each of the operators following resolution.

This little-known $3 company has identified many significant oil targets off the coast of Guyana. One stratigraphic trap called Eagle at 13,500 feet has an estimated resource potential of 610 million barrels. Even more interesting is a deeper region (18,000 feet), which is called Eagle Deep.

To the west of that, this tiny exploration company has identified several targets similar to the Eagle plays. This is a region in which this company has partnered with Repsol. Repsol is also the operator and has found a number of other targets.

Repsol, Occidental and Noble plan to drill two wells at an estimated cost of $100 million offshore Suriname, just to the east of and on trend with this company’s Corentyne prospecting license for offshore Guyana.

To the west, this company’s Pomeroon prospecting license showed two discoveries greater than 6 trillion cubic feet have been made offshore of Venezuela.

The CEO of the company has recently stated, “During the last year, [the company] has received a number of unsolicited expressions of interest from international oil and gas companies regarding the possibility of participating in the exploration of the Corentyne PPL, pending the resolution of the maritime border between Guyana and Suriname.”

As you can understand, in dealing with small-cap energy explorers in places such as Guyana and Venezuela, this is certainly qualifies a speculative play. So it’s not for the faint of heart. But the upside can be lucrative, with the stock more than doubling to $7 based on my conservative projections.

To me, that means it is a buyout candidate and is waiting for an offer it cannot refuse. Until that happens, it will explore its holdings and make announcements as to what it establishes. Each of these will be a catalyst for share price appreciation.

In many ways, this company is classic emerging-market energy play.

It has very little revenue as of yet. It holds a great deal of rights to a large oil field. Some of its holdings have been licensed out to major oil firms. Add it all up and this company is extremely undervalued based on its holdings. It’s exactly the kind of undiscovered gem you hope to find when making an energy play in emerging markets.

– Christian DeHaemer

Source: A Speculative Buy on the Second-Largest, Unexplored Oil Reserve in the World

The American electoral system has never been designed to protect sound finance, and it has become more dangerous as the federal government and the Federal Reserve itself have become more skillful at manipulating the economy of the United States. The process of running before every gust of wind reached its limits under Alan Greenspan, who always chose to inflate, rather than deflate, a bubble. His successor, Ben Bernanke, is more cautious, but has made no attempt to reverse the Greenspan policy.

There has not been a chairman of the Federal Reserve Board with sound monetary instincts since Paul Volcker resigned in 1987. It was Volcker who brought the dollar back from the brink of hyperinflation in 1987.

On May 14, Volcker testified before Congress. Scattered around the monetary world, and particularly influential in Europe, there is a group of central bankers who admire Volcker, as I do myself, and share his analysis of the present situation. The Volcker analysis is very similar to that of the European Central Bank, and to that of Mervyn King, the governor of the Bank of England.

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Volcker testified that the Fed ought now tackle the threat of inflation more forcefully. He is particularly concerned about the danger of a return to the conditions of “stagflation” of the 1970s. The Bank of England also expects that the next two years will see the pressure of rising inflation combined with low rates of growth. In the 1970s, this unpleasant combination of economic trends resulted from the loose monetary conditions of the early 1970s and the oil shocks of the mid-1970s.

Those who experienced the 1970s were taught a painful lesson about the negative effects of inflation. In standard monetary theory, some emphasis is given to the initial phases of inflation, in which an increasing money supply funds economic expansion and tends to cause booms, bubbles, and speculation.

Less attention is usually given to the second stage of inflation, in which prices rise; interest rates are increased; and economic growth rates, after an acceleration, begin to slow down. There is an illusion that inflation is good for growth; that is true of the first stage, but only of the first stage. Staglation, in which rising prices are accompanied by reduced growth, comes as a second stage.

Volcker warned Congress that he saw a “resemblance” between present monetary conditions today and those of the early 1970s, when the economy had an overall tendency toward rising prices, including big increases in energy and agricultural prices. He observed, “If we lose confidence in the ability and the willingness of the Federal Reserve to deal with inflationary presses and to sustain confidence in the dollar, we’ll be in real trouble.”

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On the same day, the Bank of England published its latest quarterly forecasts and came to much the same conclusions. The bank’s inflation projections will not return to the 2% target figure until early 2010, which suggest that it will have no room for rate cuts until then.

Britain and the United States have different political cycles. The next presidential election in the United States will come nearly two years earlier than the next British general election; the latest date for a British general election will be June 2010. The Bank of England’s economic forecast suggests that there is little chance of interest rate cuts much before that time. The government’s reluctant tax cut on the lowest income tax band will strengthen the bank’s hand in keeping interest rates at their present level.

Mervyn King observed that “The consequences of price increases would be a squeeze on real take-home pay that will slow consumer spending and output growth, perhaps sharply.”

There exists what might be termed the Volcker consensus that inflation has returned as the real threat to world economic conditions. This consensus includes Paul Volcker himself, the Bank of England, and the European Central Bank. It does not include Ben Bernanke, the Fed, or the current president of the United States. After November, we may find out whether it includes the next president of the U.S.

Regards,
Lord William Rees-Mogg

“Whiskey & Gunpowder”

Greg’s Endnote: Stagflation: Yep, that’s one of them. One of the five supershocks that are threatening the very existence of our stock markets. These shocks are looking less and less like mere theories. They’re coming soon, and the markets as we know them may not be safe. Have you started making your plan for survival? Click here to become prepared…

Source: The Danger of Stagflation