Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Tuesday, January 29, 2008

The Coming Oil Shock

A couple weeks ago, I put out an oil report ... and last week, oil stocks crashed along with the rest of the market. Well, ain't that just my luck!

But it actually is lucky for the people who bought the report – because they can add to positions. While most of those stocks are bouncing back in a hurry, they’re still cheap.

And if the global economy isn’t slowing down as many fear, the oil crisis is about to take a turn for the worse.

OPEC crude oil production spare capacity is barely existent, oil prices are hovering around $90 per barrel, and the International Energy Agency (IEA) says global energy demand grew 4.6% in 2007 and should grow another 2.3% in 2008 to 87.7 million barrels per day. That means the world will start using oil at a rate over 1,000 barrels per second!

Looking at this chart, you can see little sign of a drop in demand.

What’s more, China’s economy is nearly doubling every five years, and that country’s auto sales are growing at a 20% clip.

Meanwhile, India just introduce a car that costs less than $2,500 – which means millions more people in India will be hitting the road in gasoline-guzzling vehicles.

Here in the US, we continue to see unusually low crude oil inventories, with stockpiles dropping to 293 million barrels from 321 million barrels a year ago, according to the Energy Department.

Now look at this chart of the front month of crude. You can see that oil made a double bottom in December and January, and just pushed higher through its recent downtrend.

I believe crude could head back to its old highs and then go much higher!

Meanwhile, all this talk of an economic downturn has given OPEC all the cover it needs NOT to raise production quotas when it next meets on February 1. OPEC likes prices where they are – nice and high. And they’d like them higher.

If you haven’t already, check out my recent oil report. The sudden sell-off last week made some of these stocks incredible bargains … I don’t think they’ll remain that way for long.

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