$100 a Barrel for OIL … $4 per gallon for GAS
$100 a Barrel for OIL … $4 per gallon for GAS
Will be here sooner than you think!
Oil prices spiked above $74 a barrel during the hurricane season and gas jumped over $3 per gallon within a week. Since the end of the storm season oil dropped back to as low as $57 dollars a barrel and gas dropped back under $2.50. The fall in oil prices happen just in time for the Christmas season and helped to fuel a nice year end rally.
Oil prices, however, have been on the rise again reaching a three month high of over $68 a barrel. Geopolitical situations around the world are adding significantly to upward pressure on oil prices.
America’s BIGGEST PROBLEM…
Oil prices today are being driven higher by an ever growing demand from the US, Japan, China, India, and now Europe. This has caused and will continue to cause steady rise in crude prices. If growth in the world economy continues and it surely will, the demand for oil will out strip supply.
The scariest part of this situation is the location of the oil reserves that we are dependent upon. Keep in mind that the countries with the largest oil reserves are:
1) Saudi Arabia
2) Canada
3) Iran
4) Iraq
5) Kuwait
6) United Arab Emirates
7) Venezuela
8) Russia
9) Libya
10) Nigeria
Problems currently exist for the US in 5 of these top ten oil countries.
Iraq’s oil production is only half of what it was before Sadam Hussein and the network of terrorist in that country are determined to make sure it stays that way.
Disagreements between Russia and the Ukraine have led to temporary cut backs in natural gas. With a crumbling economy and political power plays, Russia is tenuous at best.
Relationships between US and Venezuela’s Hugo Chavez aren’t exactly peachy.
In Nigeria, 10th on the list of reserves but the 5th largest supplier to the US, rebels continue to attack oil facilities.
And last but not least….IRAN. Iran is very worried about global warming and broke the U.N. seals on its nuclear power projects to develop a cleaner source of energy (I’m Joking). The world doesn’t trust Iran playing around with anything nuclear and threatened sanctions. Iran responded by moving $50 billion out of European banks and threatens an embargo on all oil exports.
SUPPLY and DEMAND issues + GEOPOLITICAL PROBLEMS = DISASTER
Wall Street and most investors have been convinced that oil prices are up on a temporary basis and will be headed lower in the near future. This same group seems to want to discount the affect that oil prices are having on the economy, on the consumer, and on corporate America.
Over the past 30 years, the price of oil would have periodic price spikes but always settle back down to normal levels. Less than two years ago oil was below $30 and it was just three years ago that oil was below $15 dollars a barrel. Since 1869 US crude oil prices adjusted for inflation have averaged $18.59 per barrel compared to $19.41 for world oil prices.
We have been accustomed to oil prices that have maintained reasonable levels and we have fooled ourselves into thinking that this is what will happen today.
WRONG !!!
The world is ever changing and many of the changes that have taken place over the last few years have had a direct affect on the consumption trends of oil and therefore have pushed prices to levels never witnessed before. The one thing that is different about today’s increase in oil prices is that IT IS HERE TO STAY.
The consumption trends that have been put into motion over the last few years will not only continue but grow exponentially over the next 50 years.
The consumption trends I am speaking of are not just that of the US, but the growth of emerging twin economic power houses. I am referring to China and India.
The world currently consumes over 80 million barrels of oil a day. China’s growth has been well documented over the last several years. By 2040, the economy of China will be larger than that of the U.S. And by 2060, India looks to have a larger economy than both.
By 2030 (less than 25 years from now) India’s population will overtake that of China. By then China will have 1.4 billion people and India will have close to 1.6 billion people. That is 3 billion people combined, all of which want to live and consume like Americans.
If the world is currently consuming 80 million barrels of oil per day with only 1 million barrels a day in spare capacity, what will oil consumption be 10, 20, or even 30 years from now.
Oil consumption in China has grown exponentially over the last several years and is showing no signs of waning. India hasn’t even entered the picture yet. With over 80% of its population under 45, and 50% under 25, look for the economy of India to begin to explode in the very near future.
The trends I am describing are demographic and economic trends that cannot be stopped. These are good trends and we are prepared to profit from these trends. But the one overriding ramification of the growth and success of China and India is higher oil prices.
HIGHER OIL PRICES ARE HERE TO STAY…
We are learning to live with higher oil prices and our economy is adjusting to this phenomenon. The US economy has remained remarkably strong in the face higher crude. We believe this has happen because the rise has been gradual and the economy and stock market have had plenty of time to adjust. Even with oil at $50 and $60 dollars a barrel (not imagined just a few years ago) the economy has remained OK.
NO ROOM FOR ERROR…
Geopolitical issues are very tricky in today’s inelastic oil market. If IRAN decides to show the world they mean business and stop exporting oil, we could see oil prices surpass $100 barrel over night. This scenario would be problematic for the economy and the stock market.
It is going to happen and it is only a matter of time.
IT IS UNAVOIDABLE…
We believe oil over the next 5 years will easily surpass $100 dollars a barrel and gas prices in the U.S. will be over $4.00 per gallon.
With any major disruption to supply of crude from the many rogue countries that supply us the black stuff, we could see oil over the $100 level in a few short weeks.
This spells trouble for the United States economy because of the debt that the American consumer continues to hold and add to. High debt levels of individuals and low savings are only exacerbated by higher prices at the pump.
Supply and Demand…economics 101
America, Europe, and Japan all continue to be huge consumers of the worlds oil supply. Now China and India want to enjoy the capitalism and grow and flourish. Because of the shear number of people in these two countries (quickly approaching 3 billion compared to 300 million in the U.S.), the demand for oil will continue to skyrocket. Prices will too!!!
This is the one overriding factor that will continue to keep a lid on the stock market and keep the economy from really taking off.
We look for the stock market to continue to stay in a broad trading range, much like it did throughout the 1970’s. Unless you are able to pick really good stocks and have an understanding of when to buy them and when to sell them, you will have a hard time profiting in the stock market. The days of Buy & HOLD are long gone!
If for any reason, oil prices were to spike above the $90 level than all bets are off. In this situation we would look for a sharp drop in all equity markets.
Of course you can simply follow the recommendations of The Common Sense Investor which provides the investing discipline you need in this type of market. We will continue to educate our investors on the use of stop losses so that your hard earned capital is always protected from the unexpected market debacle.
Have a Profitable Week,
MARC BARHONOVICH
Editor
Will be here sooner than you think!
Oil prices spiked above $74 a barrel during the hurricane season and gas jumped over $3 per gallon within a week. Since the end of the storm season oil dropped back to as low as $57 dollars a barrel and gas dropped back under $2.50. The fall in oil prices happen just in time for the Christmas season and helped to fuel a nice year end rally.
Oil prices, however, have been on the rise again reaching a three month high of over $68 a barrel. Geopolitical situations around the world are adding significantly to upward pressure on oil prices.
America’s BIGGEST PROBLEM…
Oil prices today are being driven higher by an ever growing demand from the US, Japan, China, India, and now Europe. This has caused and will continue to cause steady rise in crude prices. If growth in the world economy continues and it surely will, the demand for oil will out strip supply.
The scariest part of this situation is the location of the oil reserves that we are dependent upon. Keep in mind that the countries with the largest oil reserves are:
1) Saudi Arabia
2) Canada
3) Iran
4) Iraq
5) Kuwait
6) United Arab Emirates
7) Venezuela
8) Russia
9) Libya
10) Nigeria
Problems currently exist for the US in 5 of these top ten oil countries.
Iraq’s oil production is only half of what it was before Sadam Hussein and the network of terrorist in that country are determined to make sure it stays that way.
Disagreements between Russia and the Ukraine have led to temporary cut backs in natural gas. With a crumbling economy and political power plays, Russia is tenuous at best.
Relationships between US and Venezuela’s Hugo Chavez aren’t exactly peachy.
In Nigeria, 10th on the list of reserves but the 5th largest supplier to the US, rebels continue to attack oil facilities.
And last but not least….IRAN. Iran is very worried about global warming and broke the U.N. seals on its nuclear power projects to develop a cleaner source of energy (I’m Joking). The world doesn’t trust Iran playing around with anything nuclear and threatened sanctions. Iran responded by moving $50 billion out of European banks and threatens an embargo on all oil exports.
SUPPLY and DEMAND issues + GEOPOLITICAL PROBLEMS = DISASTER
Wall Street and most investors have been convinced that oil prices are up on a temporary basis and will be headed lower in the near future. This same group seems to want to discount the affect that oil prices are having on the economy, on the consumer, and on corporate America.
Over the past 30 years, the price of oil would have periodic price spikes but always settle back down to normal levels. Less than two years ago oil was below $30 and it was just three years ago that oil was below $15 dollars a barrel. Since 1869 US crude oil prices adjusted for inflation have averaged $18.59 per barrel compared to $19.41 for world oil prices.
We have been accustomed to oil prices that have maintained reasonable levels and we have fooled ourselves into thinking that this is what will happen today.
WRONG !!!
The world is ever changing and many of the changes that have taken place over the last few years have had a direct affect on the consumption trends of oil and therefore have pushed prices to levels never witnessed before. The one thing that is different about today’s increase in oil prices is that IT IS HERE TO STAY.
The consumption trends that have been put into motion over the last few years will not only continue but grow exponentially over the next 50 years.
The consumption trends I am speaking of are not just that of the US, but the growth of emerging twin economic power houses. I am referring to China and India.
The world currently consumes over 80 million barrels of oil a day. China’s growth has been well documented over the last several years. By 2040, the economy of China will be larger than that of the U.S. And by 2060, India looks to have a larger economy than both.
By 2030 (less than 25 years from now) India’s population will overtake that of China. By then China will have 1.4 billion people and India will have close to 1.6 billion people. That is 3 billion people combined, all of which want to live and consume like Americans.
If the world is currently consuming 80 million barrels of oil per day with only 1 million barrels a day in spare capacity, what will oil consumption be 10, 20, or even 30 years from now.
Oil consumption in China has grown exponentially over the last several years and is showing no signs of waning. India hasn’t even entered the picture yet. With over 80% of its population under 45, and 50% under 25, look for the economy of India to begin to explode in the very near future.
The trends I am describing are demographic and economic trends that cannot be stopped. These are good trends and we are prepared to profit from these trends. But the one overriding ramification of the growth and success of China and India is higher oil prices.
HIGHER OIL PRICES ARE HERE TO STAY…
We are learning to live with higher oil prices and our economy is adjusting to this phenomenon. The US economy has remained remarkably strong in the face higher crude. We believe this has happen because the rise has been gradual and the economy and stock market have had plenty of time to adjust. Even with oil at $50 and $60 dollars a barrel (not imagined just a few years ago) the economy has remained OK.
NO ROOM FOR ERROR…
Geopolitical issues are very tricky in today’s inelastic oil market. If IRAN decides to show the world they mean business and stop exporting oil, we could see oil prices surpass $100 barrel over night. This scenario would be problematic for the economy and the stock market.
It is going to happen and it is only a matter of time.
IT IS UNAVOIDABLE…
We believe oil over the next 5 years will easily surpass $100 dollars a barrel and gas prices in the U.S. will be over $4.00 per gallon.
With any major disruption to supply of crude from the many rogue countries that supply us the black stuff, we could see oil over the $100 level in a few short weeks.
This spells trouble for the United States economy because of the debt that the American consumer continues to hold and add to. High debt levels of individuals and low savings are only exacerbated by higher prices at the pump.
Supply and Demand…economics 101
America, Europe, and Japan all continue to be huge consumers of the worlds oil supply. Now China and India want to enjoy the capitalism and grow and flourish. Because of the shear number of people in these two countries (quickly approaching 3 billion compared to 300 million in the U.S.), the demand for oil will continue to skyrocket. Prices will too!!!
This is the one overriding factor that will continue to keep a lid on the stock market and keep the economy from really taking off.
We look for the stock market to continue to stay in a broad trading range, much like it did throughout the 1970’s. Unless you are able to pick really good stocks and have an understanding of when to buy them and when to sell them, you will have a hard time profiting in the stock market. The days of Buy & HOLD are long gone!
If for any reason, oil prices were to spike above the $90 level than all bets are off. In this situation we would look for a sharp drop in all equity markets.
Of course you can simply follow the recommendations of The Common Sense Investor which provides the investing discipline you need in this type of market. We will continue to educate our investors on the use of stop losses so that your hard earned capital is always protected from the unexpected market debacle.
Have a Profitable Week,
MARC BARHONOVICH
Editor
posted by Marc Barhonovich | 7:29 AM
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