Oil can hit $200, $250... as high as it likes - it’s going to continue climbing until there’s none left... and my Profit Hunter investors and I are going to keep on raking it in...
Dear Global Investor,
We had a new record high for oil yesterday - $120.93. There’s still no end in sight to the price rises. At Goldman Sachs, they are now predicting that the price of oil will hit $150-$200 within the next two years... because supply will fail to keep up with growing demand from developing nations.
After all $200 oil is the figure that the OPEC oil cartels have been predicting for the price of black gold. In fact, it’s probably what they’re aiming for. Not that we’re overly bothered by that. We have found a couple of great ways to profit from the tide of petrodollars heading towards the Persian Gulf oil exporters. One of which is our investment in a certain merchant bank.
Oil-exporting countries became the world’s largest source of global capital flows in 2006, overtaking Asia for the first time since the 1970s. This flood of petrodollars comes from the tripling of world oil prices since 2002 and a large part of the higher prices paid by consumers has ended-up in the sovereign wealth funds and private portfolios of investors in oil-exporting countries. It doesn’t just stay there though - they then re-invest the bulk of it in global financial markets.
At least $200 billion of these funds are estimated to have flowed into global equity markets each year, with more than $100 billion going to global bond markets and some $40 billion being invested in hedge funds, private-equity firms and other alternative investment classes.
An increasing amount of this capital is now being invested in emerging markets like Asia and the Middle East, but the bulk of it continues to flow into the United States and Europe. This enormous pool of capital has become an increasingly important source of liquidity for capital markets and that only looks set to grow as the credit crunch in the West intensifies.
So where’s all this money then?
At the end of 2006, the oil exporters collectively owned $3.4 trillion to $3.8 trillion in foreign financial assets. The majority of this is accounted for by the Gulf Cooperation Council (GCC) states - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) - which held an estimated 1.6 trillion to $2 trillion in foreign assets by the end of 2006.
The enormous wealth being accumulated by the oil-exporters has been gathering a lot of attention in the financial media Much of that attention has focused on the oil exporters’ sovereign wealth funds - the huge pools of oil wealth that are controlled by governments. The largest of these, the Abu Dhabi Investment Authority (ADIA) is estimated to hold nearly $8aw75 billion in foreign assets and the Kuwait Investment Authority $200 billion.
Overlooked in all of this has been the rise of the hundreds of individual investors who have invested their oil wealth in global financial markets. In fact, at least 40 percent of the foreign assets purchased with petrodollars are now held by private individuals. And that’s where our latest recommendation comes in.
Where it’s heading...
The assets of the petrodollar investors may still be dwarfed by the traditional investors like pension funds and mutual funds, but they have been growing at a hugely impressive rate of nineteen percent per year since 2000. And that only looks set to rise sharply...
Global consultancy McKinsey estimates that even if oil prices fall to $50 per barrel, the oil-exporting countries would still invest some $387 billion a year abroad through 2012- an influx of more than $1 billion of capital a day into global financial markets.
Where is all this additional money going to end-up? McKinsey estimates that $1.4 trillion of it will flow into equities, $800 billion into fixed-income securities, and $300 billion into private-equity firms, hedge funds, and real estate. The oil exporters’ total foreign assets would grow to at least $5.9 trillion over the next five years.
And that’s a conservative figure, because the study estimates that if oil prices remain at $70 per barrel over the period, foreign assets purchased with petrodollars would grow to $6.9 trillion by 2012. That would mean an infusion of almost $2 billion a day into global financial markets.
But the price of oil has now hit a new record of over $120 and serious analysts - including myself - are now looking forward to $200 oil in just two years... whilst demand from Asia continues to grow rapidly... it seems that certain people have been grossly under-estimating just how high oil will climb for quite some time.
How to profit from this now...
I believe that the best way to profit from this flood of petrodollars is by investing in a certain merchant bank based in the Middle East. This company has the three key things that we look for in a share: It’s in a strong position to take advantage of an emerging trend, it has an impeccable track record and, right now, it’s ridiculously cheap. And, best of all, it trades right here in London.
Regards
Manraaj Singh
Profit Hunter
Editor
