The Coming Emergency in Energy

The good news is there is no shortage of oil in the U.S. … for now. But the price isn’t acting that way. I’d say the price of crude is acting like we’re scraping the bottom of the barrel.

So why, if there is so much crude, are prices going up at the pump? And what can you do about it?

Today, we’ll look at …

• Some signs that oil is going much higher — I think the current rally will go to $90 or even $103.

• I’ll also tell you about three things you should be doing right now BEFORE oil prices really take off.

• What’s more, I’ll give you one pick for your portfolio — and one you should avoid!

Here are some of the bullish signs I see in crude …

China Continues to Build Oil Reserves. China finished filling the first phase of its strategic oil reserves last year — containing about 102 million barrels — and has started construction of the second phase with a total capacity of 170 million barrels. And it’s still not enough. National People’s Congress member Chen Geng told China Energy News that the country needs to step up efforts to build up reserves of both crude oil and refined fuel.

That should help put a floor under oil prices, even as China’s consumer demand for oil and oil products keeps soaring.

Global Auto Sales Are Booming. U.S. auto sales rose 13% year over year in February. But that’s not the bullish news — almost all of those are replacement vehicles. The bullish news is in China, which overtook the U.S. last year as the world’s largest auto market. The China Association of Automobile Manufacturers says that passenger-car sales jumped by 55% to 942,900 units, while total vehicle sales were up by 46% to 1.21 million. And most of those vehicles are NOT replacement vehicles. That means they add to China’s ever-increasing thirst for oil and gasoline.

Other emerging markets are also seeing auto sales boom. In Brazil, sales leaped 10.8% year over year. In India, car sales rose 33% year over year and commercial vehicles rose a whopping 87%! And as new drivers hit the road around the world, they’ll all add to global gasoline and oil demand.

Is it any surprise that the rest of the world wants to drive like big ol’ Americans? This, along with emerging market economies shifting into higher gear, is why The International Energy Agency says oil demand will probably hit 86.5 million barrels a day this year (a thousand barrels a second).

External Sponsorship

Live Expert Tax Help at 30% Off Join over a million members and get unlimited access to expert tax professionals year round. $50.00 for each individual basic Federal and State Tax Return. Also includes IRS Audit & Notification assistance and research of complex business and personal tax issues. Sign up now to receive 30% off Tax Hotline and see if you qualify for a FREE tax return. This is a limited time offer, click HERE so you don’t miss your opportunity to save.

Oil Majors Chase Smaller Discoveries. Bloomberg reports that oil giants ExxonMobil, BP and Total are investing in assets that previously weren’t worth their time or money because oil-rich nations are reducing access to reserves and exploration drilling faltered.

How bad is the drilling going? Chevron’s exploration failure rate jumped to 35% last year from 10% in 2008. Ouch!

Failure to find new fields squeezes supply and it’s also bullish for the stocks of smaller oil companies. Integrated oil companies announced almost $100 billion in acquisitions in the past year, up 53% from the preceding 12 months, according to data compiled by Bloomberg.

Mexico Is the Canary in the Coal Mine Oil Patch. I talk about Mexico’s grimmer-and-grimmer oil production picture from time to time because it is a major supplier of imported U.S. oil. In fact, in December, it rose to our #2 supplier of imported oil (after Canada). And that means we are relying more and more on a country that is headed for a head-on collision with an export collapse.

Output from Mexico’s giant Cantarell field, in shallow waters near the eastern shore, has been cut in half in recent years. Output at Mexico’s other large field is expected to begin falling in the next year or two.

And while it’s bad enough that Mexican oil production is falling — from 3.5 million barrels a day in 2004 to a projected 2.5 million barrels a day this year — its domestic demand is climbing. Mexican oil exports to the United States have fallen by nearly a third in the last six years to drop to 1.1 million barrels a day. Remember what I said about people in emerging markets wanting to drive like Americans? Mexican auto sales are expected to rise 7% to 10% this year.

What’s the bottom line? If current trends hold, Mexico’s oil and gas exports to the U.S. could go to zero within seven years. How much do you think you’ll be paying at the pump if our #2 supplier of oil disappears from the market?

Wait! It Gets Worse!

So why is Mexico the canary in the oil patch? Because, according to data from BP, 40 out of 54 oil producing countries have flat or declining production. So it’s not just a Mexico production problem — it’s a global production problem.

The amount of oil in new discoveries peaked years ago, and we are rapidly depleting the known fields. Starting in 2011, we’ll see a drop of just over 4 million barrels per day from the fields that are currently producing about 85 million barrels a day. After 2014, world production will go into steeper and steeper decline. Is that bullish for oil prices? You bet!

Individuals like you and me can’t affect the price of oil. But we can plan and make preparations in our own lives to better ride out higher prices.

Tip #1: Consider Buying a More Fuel Efficient Car

Depleting fields and declining production are bullish for oil prices.

For my money, the price of hybrid cars still hasn’t dropped to make them worthwhile, but they’ll look more attractive as the price of gasoline rises. In the meantime, you can buy a gas-sipping car. If you have an older car that’s costing you money in repair bills anyway, it could be the right move to make. Here’s a list of the 15 most fuel efficient cars from Consumer Reports: http://tinyurl.com/
ydlwvo9. And if those cars are too small, you can find out the estimated miles-per-gallon for all types of cars at http://www.fueleconomy.gov
/feg/findacar.htm.

If you switch from a car that averages 20 miles per gallon to one that averages 30 miles per gallon, drive 12,000 miles a year, and gasoline costs $3.00 a gallon, you’ll save 200 gallons of gasoline — and $600. If the price of gasoline goes a lot higher, you’ll save a lot more.

Tip #2: Slow Down

If you’re a habitual speeder, slowing down to 55 miles per hour could increase your fuel efficiency anywhere from 7% to 21%. For every mile per hour faster than 55 mph that you travel, fuel economy drops by about 1%.

Tip #3: Use Web-based Resources to Lower Your Costs

Even if you don’t buy a more fuel efficient car, you can find the lowest gasoline prices in any zip code at http://gasbuddy.com/ and http://gaspricewatch.com. This is one of many recommendations I offer in my book The Ultimate Suburban Survivalist Guide, which has a lot more information on preparing for and riding out a full-blown energy crisis.

Another piece of advice from my book — start telecommuting. According to a report by the American Electronics Association, an estimated 1.35 billion gallons of gasoline could be saved every year if every U.S. worker with the ability to telecommute did so 1 or 2 days per week. If your boss doesn’t like the idea, tell him it’s the patriotic thing to do.

There are a lot more ideas in my book, but you get the picture. The key is to examine your life and see how you can start saving gasoline now. It will be easier to make the adjustment when prices at the pump go higher and higher.

While I expect gasoline and oil prices to go higher, they probably won’t stay that way (this time). That’s because if and when oil climbs over $100 per barrel, it saps economic activity. So, that’s when we could see the next leg down of the recession, and oil prices will go lower again.

But don’t get comfortable with lower oil prices. The big trend is up — way, way up.

What to Do In Your Portfolio

Consider making moves in your portfolio now to prepare for the next leg up in crude oil. For example, you could add an exchange-traded fund that holds a basket of oil companies. But I wouldn’t use the Energy Select Sector SPDR (XLE) — it’s stacked heavily with companies like Exxon and Chevron — the same giants that can’t replace their reserves and have to buy up other companies.

Instead, consider the Oil Services HOLDRs (OIH). It holds companies like Baker Hughes, BJ Services and Cameron International — service companies that will be getting plenty of work as the price of oil goes higher.

For the long haul, you want energy stocks that can do well no matter whether the price of oil goes up or down. Those are the kinds of energy stocks we target in my new service, Crisis Profit Hunter. If you are willing to do the legwork yourself, you can find some of these gems on your own. Just be careful — this market can turn on a dime and accelerate in both directions.

Yours for trading profits,

Sean

P.S. In the next issue of my new Crisis Profit Hunter, I’ll be focused squarely on the coming emergency in energy. I’ll have more energy picks that can shift your portfolio into higher gear. PLUS, with your subscription, you get FOUR bonus reports.

Two of those reports focus on energy, and they have a total of 5 red-hot energy picks that give you a jump on higher fuel prices! And now, for a very short time, I’m offering a special subscription price — just $89 for one year.

If you haven’t already signed up already, don’t waste another minute — get your subscription to Crisis Profit Hunter TODAY!

---

About Uncommon Wisdom

For more information and archived issues, visit http://www.uncommonwisdomdaily.com

Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates
but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

Attention editors and publishers! Uncommon Wisdom issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:

This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.

From time to time, Uncommon Wisdom may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Uncommon Wisdom or its editors. For more information, see our terms and conditions.

© 2010 by Weiss Research, Inc. All rights reserved.

15430 Endeavour Drive, Jupiter, FL 33478