The price of oil has now fallen by 63% from its peak in July.

But it is now set for a massive rebound.

Let me show you why...

On Wednesday, the International Energy Agency released its annual World Energy Outlook report.

And guess what the IEA predicts? Oil at $100 per barrel.

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The IEA is an adviser on energy affairs to 28 of the world’s most developed economies – including the UK, US and Japan. These are the big energy-importing countries. So they should be celebrating the collapse in the oil price.

But, instead, they are getting very worried about it.

On Wednesday the IEA’s executive director warned that oil prices have fallen too far, based on the costs of production.

The IEA predicts an average price of $100 per barrel between 2008 and 2015. And it expects an average price of $80 next in 2009. So right now, even the big energy importers don’t believe that the low prices can be justified.

You see, despite the global economic slowdown, demand for oil is still rising. Demand from the emerging economies in Asia, Latin American and Africa will more than cancel out falling demand in the developed world. The IEA predicts that global demand will rise by 350,000 barrels per day next year.

Oil needs to rise to prevent a supply crunch

But there is a big problem here.

Most of the existing major oil fields are seeing production fall rapidly. To make up for that – and meet growing energy demand – the world will require another 64 million barrels per day by 2030.

The kind of investment that they are talking about is absolutely colossal - some $350 billion every year until 2030. And that simply won’t happen if the oil companies and governments don’t believe they are going to make a good profit on it.

This isn’t some distant threat either. The IEA is warning that the world could face a major oil shortage by 2015 if there isn’t enough new investment.

Judging by the IEA’s figures, the price of oil will have to go up to $80 just to guarantee future supplies over the next few years. It’s trading at $55.03 right now. So that practically guarantees a 45% gain in the short term.

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But $80 is a conservative estimate. That doesn’t take into account oil companies’ profits. I believe oil will head back to $100. That’s an 82% gain from where it is now.

More oil cuts are on the cards

That brings us back to our good friends at OPEC and their plans to cut oil production.

I expect them to slash their daily oil production at the next scheduled meeting on December 13th. And I don’t believe they will slash it by anything less than a million barrels per day.

And that might happen even faster than we thought. Because the OPEC oil barons are getting very nervous about the falling oil price…

On Wednesday, Iran’s commissioner to OPEC said that they could bring the meeting forward if the oil price keeps falling.

And yesterday there was talk that that meeting could happen on the 29th of this month. Whether it is the 29th of November or 17th of December, you can bet that OPEC is going cut oil production.

The analysts and traders who are still betting on cheaper oil are in for a nasty shock.

Here’s how to play it

We stayed out of investing in oil companies as the oil price soared to unrealistic levels in the first half of this year. But that has totally changed. The price of oil has now fallen to an unrealistic level. And we are getting ready to pounce.

Right now investors are valuing oil companies based on the lower price of oil. Companies like Shell and Exxon are trading at just about 4 times their earnings. Personally, I don’t think that these are bad investments right now.

But on my Profit Hunter service, we have zoomed in on a much smaller company that I believe has a lot more potential. You see, the best way to make real money in a gold rush is selling shovels to the miners...

This tiny London-listed company owns the vital infrastructure that the oil companies need to access one of the richest oil reserves in the world. Without it, they can’t get to the oil.

Now that some of the biggest oil producers in the world are sniffing around, this tiny company looks set to make a mint!

Discover how you can snap up this company at an absolute bargain

Until Next time
Manraaj Singh

The Daily Reckoning – How Much Correction Does Mr. Market Have in Mind?

Where are the plumbers? We are all Japan, now... And more!

You remember the ‘plumbers?’ That was the name given to a special government committee – known as the Plunge Protection Team. When the drains get clogged and the water starts backing up, this group is supposed to put on its waders and get to work.

And yet, now we have the water rising all over the world... and whole towns in California already submerged. Where are the plumbers?

Who knows? Maybe they had something to do with yesterday’s rally. The Dow rose 552 points. The dollar went down hard – with the euro up to $1.28. And gold rallied $16 too – to $734.

You can read the Daily Reckoning in full here

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