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Why oil investors present a golden opportunity in 2009

Oil prices have fallen 70% since reaching a record $ 147.27 per barrel in July, which means that in just five months, crude has waived all price increases made over the past four years.

After withdrawal of fall, many analysts believe the prospects for black gold "remains bleak. – And in the short term, certainly in the long term without But the decline in reserves, the demand for revival and the lack of investment in crude oil double, triple or even quintuple the price in the next years.

In fact, the Paris-based International Energy Agency (IEA) – energy adviser to 28 industrialized countries – said oil increase $ 100 per barrel in 2015, following an important "supply crisis" and ultimately raise $ 200 a barrel.

But before he, prices tend to sink even more, perhaps falling as low as $ 20 per barrel in the first quarter of the new year.

In fact, much of Wall Street expects oil prices to average $ 50 a barrel in 2009. Some companies and their specific predictions include:

• Deutsche Bank AG (DB, who says oil prices will average U.S. $ 47.50 over the next year.
• Merrill Lynch & Co. Inc. (MER), which predicts that the average price of $ 50 even.
• Moody's Investors Service (MCO) also said that oil will average $ 50 a barrel in 2009, but says the average increase of $ 55 per barrel for 2010.
• Goldman Sachs Group Inc. (GS) is slightly pessimistic, predicting that prices will average $ 45 for all of next year – after you have fallen as low as $ 30 in the first quarter of 2009. (Note Goldman – Just five months – Oil prices expected to reach $ 200 a barrel in 2009).

But analysts also agree on another thing: when the last recession, low tide, all factors that pushed oil to its record high last summer will be exposed, and oil back up to record levels.

"We may see prices fall at least – in their twenties, even – but no more than average chance that it will be back above $ 70 a barrel at the end of next year ", says the money tomorrow Investment Director Keith Fitz-Gerald. "It is companies like Goldman Sachs and Merrill are all these means of road, $ 50 per barrel estimates. And that is why investors buy in First quarter income could benefit from weight at the end of the year. "

In the meantime, however, oil prices are low crimp investment in new capacities, a reality that will lead to much higher price on the road.

Only the request of the IEA.

IEA: increase demand + lack of investment "Supply Crunch '=

According to the Minister of the widely respected energy efficiency, global demand Oil will slide by 0.2%, or 200,000 barrels per day (bpd) this year, falling to an average 85.8 million bpd. However, the IEA also said oil demand will grow by an average of 1.6% between 2006 and 2030.

Conclusion: Regardless of any reduction in the short term, demand daily from the current level of 86 million barrels to 106 million barrels in 2030. In other words, the daily demand in 2030 will be 23%.

To meet this demand, the agency believes that the world needs 26.3 billion U.S. dollars investment in supply during the next 21 years.

China, India and other developing countries only require an investment of 360 billion dollars per year through 2030, the agency said.

About 7 million bpd of capacity additional amount should be added to the market in 2015. And now – due to changes in the market – the financial incentive to do so simply does not exist.

Exploration costs have more than quadrupled since 2000, oil producers have been forced to take on more complex projects, and costs of labor and materials have skyrocketed. At the same time, the sharp fall in oil prices has put more pressure on energy companies to reduce their investment rather than increase them.

Earlier this year, for example, ConocoPhillips (COP) and Saudi Arabia Investment Co. (Aramco) was forced to postpone the bidding for construction of a refinery of 400,000 barrels per day for export to the industrial city of Yanbu.

"We see and hear the delay in energy investments … is a major concern and could lead to a shortage of supply and oil prices much higher than we've seen before, "said Fatih Birol, chief economist IEA chief.

The IEA predicts that by 2015, lack of investment and growing demand will create a "supply crisis" – which is once again the price of oil in the triple digits.

"There is a real risk of investment will provoke a crisis in oil supply this period of time, "the IEA said in a summary of its" World Energy Outlook 2008 "." The gap between what is currently under construction and necessary to keep pace with demand expected to increase significantly after 2010. "

The agency expects that oil will average more than $ 100 a barrel from 2008 to 2015 and an increase above $ 200 a barrel in 2030, while demand far exceeds supply.

"If While the situation facing the world is critical, it is vital that we keep our eyes on the support of long-term goal of a sustainable energy future ", Nobuo Tanaka, the Paris-based agency, Executive Director, told reporters in London. "Despite market imbalances feed instability, oil was cheaper over. "

While it is probably true that the days of "cheap oil" is in our rearview mirror, a new question arises: How high oil prices?

Analysts said the price target of $ 200 a barrel IEA is much too conservative.

$ 500 oil?

The lack of exploration and development is certainly a problem. But much more important thing is the fact that production of oil fields in the world today has fallen sharply.

"The future rate of decline in production, production oil fields as they mature is the most important determinant of the amount of capacity to build new to meet global demand, " the IEA said.

And of oil production worldwide is falling faster than expected.

In its "World Energy Outlook 2007, the IEA estimates that the production of existing oil fields around the world fell by 3.7% per year. However, in its latest report, published in November, the IEA revised this estimate to an annual decrease of 6.7%. (The November report was based on the first comprehensive study of 800 largest oil fields largest in the world.)

Unfortunately, the IEA is running.

For nearly a decade, Matthew R. Simmons said that world oil production has been almost – or because -. "tipping point", a way that his book "Twilight in the Desert: The Coming Saudi Oil crisis and the economy world, "laughed when it was first published in 2005, Simmons is now regarded as perhaps the leading expert in the" peak oil "movement.

"Like most people who ignore conventional wisdom, was mocked, ridiculed and denied," product guru Jim Rogers told Fortune magazine. "And now, of course, people start to say" Oh, well, think about it. "

Simmons, Chairman of investment bank based Houston Simmons & Co. International, paid for hundreds of technical papers submitted by Saudi oil geologists to the Society of Petroleum Engineers in last 50 years.

"I finished reading the last article in a Sunday afternoon," Simmons said Fortune, " and I sat and thought, "Shit, this is incredible. I hope to find more and more energy in the world. We're in big trouble. I'll write a book. ""

Much of the alleged subterfuge Saudi Arabia has to do with the lack of transparency in relation to the Organization of Petroleum Exporting Oil. After OPEC decided to base its production quotas on reserve figures in the 1980's, many producers agreement soon increased its level of "proven reserves" of 40% or more.

In 1988, for example, Saudi Arabia increased its net proved reserves of 170 billion barrels 260 million barrels. This figure has remained more or less constant since then, despite billions of barrels of oil pumped from the ground.

"Saudi Arabia has announced for 20 years in a row that have 260 million barrels of oil in reserve," Rogers told Money Morning during an exclusive interview in Singapore recently. "It's unbelievable. The figure never goes up and never down. There have been tens of millions – billions – of dollars of oil in this period of time.

"All countries of the world's oil reserves are falling, except Saudi Arabia," said Rogers. "And I know that every oil company has reduced the reserves. So unless somebody discovers a lot of oil very quickly in areas very accessible, the surprise is the height of the price stays and how high it goes. "

Simmons believes oil prices could reach $ 300 a barrel – and possibly could push $ 500 a barrel – in the coming years.

"Black Gold" play-for-profit

As regards investment, the oil sector presents clear risks, especially given the gloomy outlook in the short term. However, there are a number of large firms integrated oil cap that can offer a very attractive value at current prices.

Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) are negotiating currently at its lowest level in several years, making them extremely cheap, in both absolute and relative terms. These companies also have strong balance sheets (Exxon is AAA – and has evaluated more money on its balance sheet debt), generate strong cash flows, and have always increased their dividends regularly.

Chevron has actually been recommended as a "Buy" Money Morning Contributing Editor Horacio Marquez in his "Buy, Sell or maintain "the plus column earlier this year.

"Chevron is the kind of society that is able to continue after big gains – encouraging share higher current levels – even if the price of oil and gas were to fall from current levels over the next three years, "Marquez said. "That's because Chevron's business is well protected, as refining margins, marketing and chemicals will increase dramatically if the spot price in the market have been declining. In addition, the production company is about to dramatically expand and Chevron uses coverage works very rather selective in oil markets fall. "

offshore drillers, particularly those capable of drilling in deeper waters, also offer value at current levels. Petroleo Brasileiro (PBR), also known as Petrobras, is particularly interesting because recently discovered one of the largest fields oil in the sea shore on the coast of Rio de Janeiro. Known as the Carioca field may have 33 billion barrels of oil and gas, so the discovery world's largest in at least 32 years.

Fitz-Gerald, Investment Director Tomorrow's money said investors see China National Offshore Oil Corporation, or CNOOC Ltd. (ADR: CEO). The company, based in Hong Kong has recently received approval for a proposed $ 29 billion in exploration in the Southern China Sea. The company expects to produce 50 million tonnes of oil equivalent per year from this region for 10 to 20 years. That would equal the production of large projects in China, the Daqing oil field.

Petrobras and CNOOC are also interesting because and foreign firms, but also have a boost of any devaluation of U.S. dollar.

All these companies were affected by combination of commodity prices low and turmoil in credit markets. However, these operators do not require raw edge prices in cycle to generate stellar results and have little or no credit risk in the market.

To address more direct play on oil prices also might try an exchange-traded funds (ETFs), including the United States Oil Fund LP (USO), the iPath S & P GSCI Crude Oil Fund Total Return (OIL), or gasoline in the United States Fund LP (UGA).

is [Editor's Note: As the trade of energy investors have been bidding models this year have shown, on the financial crisis has changed the investment game forever. The uncertainty is now the norm and the new reality itself has created a new set of rules that determine who benefits and who loses. Investors who ignore this "new reality" struggle and find their financial raids to be frustrating and unrewarding. But investors who adopt this change will not only survive - they develop.

Investment morning Fund Director Keith Fitz-Gerald had been isolated and these new rules and has unlocked the key to what he calls "the golden age of creation. Wealth "But Fitz-Gerald brings a greater awareness - and understanding -. In the table here after a decade of work, also developed a new business model based on a computerized mathematical concept known as "fractals." This system allows you to predict rate movements price or width of each population with a high degree of certainty. It is especially suitable for the type of market we are all facing right now. See our latest report on the new rules, and this new market environment.]

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About the Author

Jason Simpkins is Associate Editor of Money Morning

Arthur Meyerson – Only in Houston 2007 Award Winner