Most investors still just don’t get it. But there really is only one way for the oil price to go. And that’s up.
In fact, despite OPEC deciding at last Sunday’s meeting that it’s not making further production cuts right now, the price has taken off this week.
And even though we’re a little surprised the Cartel took no action this time around, we’re even more bullish than before.
That’s because, as anyone who really understands the oil markets knows, OPEC is not done cutting. In fact, what they’ve done is actually extend your window of opportunity to get into the oil market.
Why you shouldn’t listen to the City oil analysts
I spend a lot of time following the oil futures markets. These show what investors are willing to pay now for oil that is going to be delivered at a specific point in the future. Right now, investors are paying almost $60 per barrel for delivery in December. That’s almost $10 more than oil costs right now.
The only reason you would do that is if you actually believed that oil at $60 per barrel is going to be cheap by December. And here’s why I actually believe it is going to be a lot higher…
Regular readers of The Right Side will know that we began warning of a massive oil price rebound late last year. Back then oil was trading at just about $35 per barrel. And our bullish view was totally at odds with most City analysts.
But the facts speak for themselves. The price of oil has risen sharply since then. It’s already up by more than 40%. It seems that some investors are finally starting to come to their senses.
The real money to be made is ahead, though. The thing is, most investors don’t understand how big the rally in the oil price is going to be. But I expect OPEC to make further sharp cuts later this year. In fact, it could happen as soon as May. So I’m not writing just to take a swipe at the City boys. I’ve actually got a way that you could profit very handsomely from it.
The real reason OPEC didn’t cut production on Sunday…
You just need to look at what’s been going on inside the Cartel. The Saudis have made about half of the overall reductions in OPEC’s output so far. On the other hand Iran, Venezuela and Angola have only delivered about half their promised cuts. That’s ironic. Because Iran and Venezuela have been the biggest advocates of cutting production to drive the price of oil up. In effect, they’ve been piggy-backing on cuts by Saudi and the other members.
The Arabs are clearly fed-up with this foot dragging. So the meeting on Sunday focused on getting all OPEC members to cut production to their agreed quotas. The slackers aren’t going to get a free ride anymore. If they want a higher oil price, they’re going to have to do their bit. And Iran and Venezuela actually need a much higher oil price to keep their economies growing than Saudi does. They’re going to have to cut production.
But there’s another reason OPEC’s been holding back just lately…
OPEC has already delivered on about 80% of its cuts so far. The remaining 20% will reduce global oil supplies by another 800,000 barrels per day. That looks set to keep the upward pressure on the oil price.
But there’s another big reason they didn’t cut on Sunday – the G20 meeting on 2 April. That’s when Gordon Brown is gathering the leaders of the twenty most important countries in the world here in London to discuss the economic crisis.
The Saudis will be the only OPEC member there. And they definitely don’t want to take the flak for the rising oil price. That’s why they resisted new cuts at this meeting. But this is just a feint, not a change of strategy. They are still working on driving the price of oil higher.
You don’t have to take my word for it. Just listen to OPEC’s Secretary General, Abdulla El-Badri. Right after the meeting on Sunday he let slip that "the consensus was reached because the G-20 meeting was on the horizon, and we didn't need to look bad." So, by not cutting production ahead of Gordon Brown’s shindig, they actually temporarily halted the oil price rally on Monday.
But it cannot derail the uptrend that is in place…
More cuts are on the way
OPEC isn’t done turning the screws on the oil price. In fact they have already scheduled an extraordinary meeting of the cartel in May. And the question of further production cuts will be back on the agenda.
It’s not that OPEC are a bunch of greedy, insidious moneygrabbers. They’re just trying to do what’s best for their countries and their people. And their economies just can’t survive with the current price of oil.
So have no doubt about it. More production cuts are on the way and the price of oil is going up! Now’s the time to buy oil stocks…
Good investing,
Manraaj Singh
For The Right Side
MARKET NOTES
“Sideways is the new up” – how to pick the best stocks for income
BY THEO CASEY
The two things an investor wants from any stock are dividends and capital gain. But let’s be realistic. Capital gains will be harder to come by this year. That’s why it makes sense to focus on stocks paying the best dividends and aim for income…
But it’s tough to know what to buy.
In the current climate of funding worries, more and more companies are choosing to hoard their cash rather than continuing to pay dividends in the fight to survive. So we recommend sticking with the popular, obvious yield plays.
Below is a list of the top ten dividend payers in the market. This is where 55% of investors go to pick up a yield. These will feature heavily not only in private investor portfolios… but also in pension funds. So we’re talking big volume.
The income list – The top ten UK income stocks represent over half of 2009’s total dividends
Source: Sarasin & Partners
These are your first choice when looking for income.
Of course, the usual caveats apply... These are the top ten today, but with the unpredictability of the downturn there may be some different players in the list this time next year. To be really comfortable, we need to dig a little deeper and make sure that the stocks we pick have the cash ready to keep paying shareholders.
Publisher’s note – Theo Casey is investment director for The Fleet Street Letter. Three of the positions listed above are current on his “buy list”. To find out which trio of stocks is best placed to pay you an income, sign up to The Fleet Street Letter today.
The Daily Reckoning – Yes we can’t!
BY BILL BONNER
Paris, France
Friday, 20 March 2009
Wham! For a while, investors didn’t seem to know what had hit them. They were dazed... dumbfounded... awe-struck...
Then Bernanke announced a “stunning” plan to save the world from depression on Wednesday.
The numbers were hard to follow, but they were big:
$300 billion, was the number Bloomberg reported.
$1 trillion, said the New York Times.
$1.2 trillion, countered the Washington Post.
It turned out that all these numbers were correct. The Fed was going to buy $300 billion of US Treasury bonds... and more of other securities – notably bonds from Fannie and Freddie.
“Quantitative easing,” the papers called it.
“What’s that?” investors wanted to know.
So, it took them a while to put two and two together. But when they’d done the math, they began to see what we’ve been warning about.
This is a very powerful and aggressive move,” said the chief economist at Bank of New York Mellon Corp., speaking with Bloomberg Television. “One of the reasons I’ve been arguing we won’t have a depression is we’ve got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.”
Bloomberg continues: “With the purchases of Treasuries and housing debt, Bernanke is effectively using the Fed’s powers to print money and aim it where he and other officials believe it will have the greatest impact in lowering borrowing costs.”
What do we know? Maybe Ben Bernanke will be able to do what no central banker has ever done before: put in just the right amount of inflation... not too much, not too little.
In the past, they tended to overdo it. There are not many examples. France, England and America in the 18th century. Practically no examples we know of in the 19th century (they’d learned their lesson!).
And in the 20th century – only marginal countries, or countries with nothing left to lose, engaged in ‘quantitative easing.’ Germany did it in the 1920s, because her war reparations burden was greater than she could sustain. Argentina did it in the 1980s, because it owed too much money to too many foreigners. And Zimbabwe did it in 2003-2009, for reasons of its own.
There are not many examples, because the consequences of overdoing it are so horrible, central bankers have generally not done it at all. Quantitative easing was always a possibility, but it was always a last resort...like blowing up the powder and spiking the guns; it was something you did when you knew you’d lost the battle already.
But here is the world’s biggest economy and its oldest (arguably) and most successful government doing something that used to be done only by desperadoes.
What does it mean? Where does it lead?
We don’t know. But we don’t think we want to go there.
Investors didn’t seem to want to go there either. They sold off stocks and bought gold.
Gold shot up on Wednesday, after the Fed announcement. Then, it just kept going... adding another $70 yesterday. We wondered why the price hadn’t already hit $1,000. It looks like it soon will - this morning it is back over $960 an ounce.
Meanwhile, oil rose above $50, the dollar took a big drop and the Dow finished down 85 points. The greenback slipped to $1.36 per euro.
As to the stock market, whether this is a pause in the rally or a reversal, caused by the Fed announcement...we don’t know. Our guess is that it’s just a pause. The rebound is still unfinished business…
Read on…
To read the Daily Reckoning in full, click here.
P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.
