The End of Cheap Oil
In its latest brilliant move, the International Energy Agency is planning to release 60 billion barrels of crude oil — half of which is slated to come from American emergency reserves — to electronic bidding, starting this coming Wednesday.
This made big news when it was announced last week as a stopgap remedy to the supply disruption stemming from turmoil in Libya, instantly sending crude prices plunging to a four-month low of just under $91/barrel.
#-ad_banner-#Now, I’m not about to start ranting and raving about the logic in releasing over $2.1 billion worth of our emergency national supply (about 4% of the total) in order to compensate for political turmoil in a country which we’re also, by no coincidence, bombing…
To me, it’s just another multi-billion stimulus Band-Aid, bought and paid for by the U.S. taxpayer, ultimately doomed to failure in the long run.
What I did want to point out is these latest fluctuations in the price of crude may be the very last moments the price per barrel falls below the triple-digit mark.
And this is a problem that neither the IEA nor any other committee or multinational force or collective will be able to solve with last-second infusions of funds or resources.
We’ve been flirting with $150/barrel crude since 2008.
Ironically, what saved us from $150 — even $200 — barrel prices was modern history’s second biggest recession.
What the 2008 meltdown did to travel and commerce effectively put a drag chute on the oil industry, and allowed for the breaks on prices two summers ago when we were flirting with $5 a gallon at the pump.
To my amazement, few analysts and talking heads pointed out at the time that this recession was our best and last chance to keep gas prices at palatable levels.
It was a losing proposition, of course. Because now, three years later — with the recession still not under control — prices were almost back to where they were during pre-crisis stages…
What this should tell you is that from now on, the prices are going to steadily rise.
With the great recession’s dampening effect now getting a little stale, there is literally nothing left to keep crude prices from following the natural demand/supply arc. The really bad news here is that the supply half of the arc I’m talking about will look something like this:
Which corresponds to a price arc looking very much like this:
Nothing new, right? Same old Peak Oil theory coming back to haunt us.
The main concern now shouldn’t be Peak Oil itself, because that’s not something we can control anymore; but rather the long-term effects of the temporary reprieve handed to us by the financial crisis of 2008.
With drastic increases in prices effectively delayed for that period of consumer frugality, we’re now approaching a point in which prices are about to reassume their natural trajectory — regardless of the financial state of the United States and of the world…
Which means we’re basically back on track to experience the harsh brunt of Peak Oil. Something seemingly positive like an economic recovery tossed into this sort of mix would have the effect of injecting oil prices with steroids as they rapidly get back on track.
In short, get ready for $5-a-gallon gasoline. It may not come next week or even next month, but it will come.
And once it’s here, it’ll never go back.
Remember, it’s not just your gas that’s going to hit you in the pocketbook, but everything else that requires gas to get to you: food, water, and every other supply you rely on to live and work every day.
It’s the brave new world, ladies and gentlemen…
So what are you supposed to do, knowing all this now?
Well, one option would be to take what has now emerged as the most predictable — and most unstoppable — financial trend in modern history and leverage it into earnings for yourself.
Trust me when I say you’ll appreciate the extra cash when a loaf of Wonder bread starts costing $10 at your local Giant…
So how do you do this? Well, the one thing there’s no shortage of is your options as far as investing in oil. From the ETFs to the big corporations like BP and Chevron, you can put your money to work tracking the inevitable rise of oil as we move from peak production to global shortages.
But a method I far prefer to the standard investment strategies is going with the explorers. While Shell and Exxon may get you’re the gas into your car and make billions in the process, the oil explorers are where the rubber really meets the road — and wherein big percentage gains are the goal, not the exception.
For the last several weeks, I’ve been teasing you with a company about to capitalize on the world’s last and greatest unexploited fossil fuel region.
With property holdings totaling well over 100,000 square miles, this company is one of the biggest landowners in a region estimated by the USGS to contain over 72 billion barrels of oil — that’s 1,200 times the volume of crude just released by the IEA last week, with a total resource value of more than $6 trillion.
Best of all, with oil prices temporarily reeling from this stimulus package, this company’s market cap is now less than $270 million; its stock trading at just $1.50. At prices like those, even a minor discovery on their massive property will drive stock prices up hundreds of percent as production is set up.