Join Date: Jan 2001
Location: Toronto, Canada
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If you can't beat em, get rich with em
It's time to invest for $100 oil
Once unthinkable, now all but inevitable, triple-digit crude is certain to have an impact on your finances. Make sure it's the right one.
By Michael Brush
Investors, get ready for $100-a-barrel oil.
The risks are global -- and huge
Besides basic supply-demand constraints, several geopolitical hot spots could flare up and make oil prices spike:
Iran: Iran says it wants to produce more electricity from nuclear power so it can sell more oil abroad. But U.S. intelligence experts suspect the country is also developing nuclear weapons that could fall into the hands of terrorists. "The U.S. is pretty determined to stare 'em down," says Tom Petrie of Petrie Parkman & Co., the Denver brokerage and investment bank that specializes in the energy sector. If the confrontation boils over into military strikes on Iranian nuclear facilities, the price of oil would go bonkers. Iran could retaliate by cutting back production or closing the Strait of Hormuz, through which much of the oil from the region passes, speculates Rep. Roscoe Bartlett, R-Md., who follows energy issues closely.
Iraq: Ongoing attacks by insurgents on the energy infrastructure make it impossible for Iraq to reach its goal of producing 3 million barrels of oil a day. Recent levels are closer to 2.5 million per day.
Saudi Arabia: Saudi Arabia is the largest OPEC producer and controls much of the cartel's spare capacity. But it faces threats from al-Qaida and potential terror strikes on its oil infrastructure. The country's regime also faces civil unrest. "One scary scenario is that zealots take over in Saudi Arabia because they are unhappy with the royal family," says Bartlett.
Nigeria: Nigeria's rich reserves make it one of the world's top oil-producing nations. But most of Nigeria's oilfields are in the Niger Delta, a region where poverty and unemployment fuel a long-running conflict between locals and the oil companies. Attacks by rebels on the energy infrastructure have shut down about a quarter of the country's production this year.
Venezuela: Venezuela, the world's fifth-largest oil exporter, is in talks to become a major supplier to China. That would tighten supplies around the globe, since more oil would be locked up in transport during the trip to China, says Petrie. Another potential problem is Venezuela's increasing ties with countries such as Russia, which is supplying military equipment, says Holmes. If this rekindles the Monroe Doctrine and the United States takes steps to limit Russian involvement in Venezuela, that would be bad news for oil prices.
Hurricane season: Last year's hurricanes along the Gulf Coast destroyed energy infrastructure, causing a temporary spike in the price of oil and gas. Hurricane season just began, and the same thing could happen this year.
Profiting from $100 oil
Goldman Sachs analyst Murti says that the recent pullback in energy company shares means the current high price of oil is priced into the stocks. But he thinks oil can go even higher, so he is telling clients to buy stocks like ExxonMobil (XOM, news, msgs), ConocoPhillips (COP, news, msgs), Canadian Natural Resources, Suncor, XTO Energy (XTO, news, msgs), Southwestern Energy (SWN, news, msgs) and Bill Barrett (BBG, news, msgs).