How The Falling Oil Price Could Give You A Double Profit Play

The price of oil has taken a beating over the last four months.

It has now fallen 56% from its peak of $147.27 on July 11th.

You may say that’s a good thing. It means cheaper petrol at the pump, after all.

With the Christmas shopping season just around the corner, no one really wants to waste more than they have to filling up the tank.

I think it is brilliant news too. Because the collapse in the oil price has actually opened-up some excellent investment opportunities.

Oil companies have seen their share prices take a double hit. Their shares have been sold off in the global share market rout. And investors have also dumped oil stocks as the price of oil has fallen...

Right now, some of these shares are dirt cheap. But I don’t think that this is going to last for much longer.

You see, I believe that the price of oil is going to head back up again pretty soon. In fact, I expect it to start heading back up just in time for Christmas.

So getting in to the right oil investments now could really be one of the smartest moves that you could make.

The analysts are going to get it wrong... again

Right now though, the analysts in the City and on Wall Street are actually cutting their estimates for the price of oil.

With the big industrial economies in recession, they are predicting that demand will fall. And the latest US figures actually show that happening.

US fuel demand over the last four weeks was 7.8% lower than it was at the same time last year.

Figures like that are getting the analysts nervous. But I don’t think that they have a clue what they’re talking about. Most of them completely missed the boat in calling the bull market in the oil price on its way up. And now they’re being too pessimistic about it after the falls.

Let me show you exactly why I think they have got it wrong.

In a free market when demand falls, prices fall too... assuming supply stays constant.

But the oil market isn’t entirely free. It is dominated by the OPEC oil exporters’ cartel. And OPEC has everything to lose by letting the price of oil keep sliding.

OPEC is acting to boost the oil price

Demand may be falling, but the cartel is going to cut production to keep the price of oil from falling.

OPEC decided to cut production by 1.5 million barrels on October 24th. And they have already cut the amount of oil they are shipping to customers.

But OPEC isn’t done yet. They are already talking about another production cut at their next meeting on December 17th.

The exporters’ cartel is absolutely determined to drive the price of oil back up.

So you can expect a rather nasty little Christmas present from the oil barons.

On top of that, demand for oil is still rising in the emerging Asian economies. Countries like China and India need more of the fuel. Not less of it. And that largely offsets the falling demand in America.

And OPEC’s cuts aren’t short-term measures either. There are signs that they are reducing their future production plans as well.

On Tuesday morning the deputy CEO of the Abu Dhabi National Oil Co. announced that that they are pushing back their output target of 3.5 million barrels per day by eight years. They had planned on getting there by 2010. Now it is going to be 2018.

That matters because the company produces almost all the oil in the United Arab Emirates. And the UAE is the world’s fifth biggest oil exporter.

Oil that the markets and analysts assumed would be there shortly just isn’t going to be.

And the non-OPEC countries can’t make-up the difference either

OPEC currently controls just over 40% of global oil supply. But the key point is that none of the big non-OPEC oil producers has significant spare capacity. They can’t just raise production to make-up for an OPEC production cut.

And the non-OPEC countries are predicted to hit peak oil production by 2010. It is all going to be downhill from there.

In fact some of them may already have seen their production peak. Just look at Russia. The country is the biggest non-OPEC producer. And it is now the world’s second biggest producer after Saudi Arabia. But the Russians have been clear that they have already hit peak production.

And even if we see a really sharp recession in the industrialised countries that leads to a sharp drop in demand for oil, that will only delay the non-OPEC countries hitting peak-oil production by a short time.

And then OPEC will really hold the whip hand over global oil prices.

What that means is that the long-term price of oil is heading upwards. The current depressed prices of oil companies won’t last either. They will take-off as the price of oil rebounds.

This is the time to pounce

Right now, oil shares have taken a double beating. They have been hit by the fall in global share markets as well as the falling price of oil.

So for anyone interested in snapping-up oil assets on the cheap, this is the time to move. And China’s oil giants are already gearing-up to pounce on undervalued oil companies — which makes it all the more interesting.

That opens up excellent investment opportunities for us too...

So far, we have stayed out of buying directly into oil companies on my Profit Hunter investment service. I believed that the price was just too volatile.

I’ve consistently made the point in these letters that we are in the era of $100-oil. I believe the current sub-$100 level is a temporary blip in a long-term up trend. Now, the factors for a rebound in the oil price have become increasingly clear. And this is the time to get in.

What we are looking for is a double profit play. We are looking to buy into the recovery in the oil price. But it also has to have clear potential as a takeover target — particularly by the Chinese.

We have already identified several candidates that fit the bill. And one of them in particular really stands out. I will shortly be sending members of my Profit Hunter service all the details about it.

And we already have another play on the oil industry. It is an entirely off-beat play on oil — rather than a direct oil company investment. And it is precisely the kind of investment opportunity that we look for on the Profit Hunter service.

You see, this tiny London-listed company controls the gateway to one of the most important oil reserves in the world. It doesn’t actually pump out the oil itself. Instead, it controls the vital infrastructure that the oil companies need in order actually get at that oil. And the Chinese and Americans are jockeying for access to those reserves. That puts this little company in a very sweet position.

Click here to access this company right now — and set your self up to receive our new oil "double play".

Regards,

Manraaj Singh
For Fleet Street Daily

Bank slashes interest rates

By Ben Traynor

The Bank of England this afternoon cut interest rates by a massive 150 basis points. The base rate is now 3%, a level we haven’t seen since 1955. Not only that, it is also below the European Central Bank’s main rate, which 45 minutes later was lowered to 3.25%. Other things equal, this means global investors can expect to be paid more to hold euros than they would be to hold pounds.

The Bank’s drastic action is a sign of how bad it believes things are. For months the Monetary Policy Committee (MPC) was caught between worrying about inflation and worrying about the crumbling economy. Well, there can be no doubt now what its priority is — and it isn’t maintaining the value of money.

Meeting after meeting this year the MPC’s arch dove, David Blanchflower, voted for rate cuts. Often he was on his own... but his colleagues are listening to him now!

The next thing we wait on is to see whether the commercial banks pass this cut on. They haven’t passed recent cuts on. It seems the financial authorities have decided to offer a cut so big, the banks can’t possibly keep it to themselves.

Or can they? Time will tell... but one thing’s for sure. This cut, big as it is, will not on its own prevent a recession. There are still 300 basis points left before we hit zero. If we follow the example of 1990s Japan, we could end up using up most of them. At this point in time, that seems a scarily plausible scenario.

The Daily Reckoning — The Economy’s Gone into Rehab

By Bill Bonner

The economy’s gone into rehab
Yeah, yeah, yeah...

Nobama rally yesterday.

World markets had been recovering from October’s drubbing. The Morgan Stanley index, which measures capital market performance around the globe, had risen 20% from last month’s lows. But yesterday, stocks got a drubbing again...

...with a big drop for the Dow... minus 486 points.

And the bad news keeps coming.

GM’s car sales down 45% in October — even as the price of gasoline dropped back to $3 a gallon.

Mastercard says consumers are getting tight with their money.

"Luxury sales drop sharply," adds the Wall Street Journal.

Foreclosures are up in Miami, New York and Seattle.

And 157,000 people were laid off last month — the most in almost 6 years.

You can read the Daily Reckoning in full here.

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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