You see, Venezuela’s left-wing president is facing a massive cash shortage. Oil prices have fallen by 60% since their peak last July. And that’s been a disaster for Venezuela because 90% of its export earnings come from oil.
That has left the state oil company PdVSA without enough cash to pay the oil services companies. It now owes them $14 billion. And it hasn’t paid a penny since August. So, many of them stopped providing PdVSA with crucial support services like drilling and logistics.
In Chavez’s socialist paradise, the solution was simple – instant “nationalisation.”
On Saturday, PdVSA seized control of 60 oil-services companies in the country. That gives Venezuela some breathing space in the short-term. But in the long-term, it’s an absolute disaster.
You see, Venezuela can’t develop its vast oil wealth on its own. It doesn’t have the expertise. Venezuela’s oil production has already fallen by a quarter in the last four years alone. And it desperately needs the help of the giant international oil companies to push it back up.
But the oil companies are extremely nervous about investing in Venezuela because of Chavez’s habit of nationalising property. In fact, oil giants Exxon and Conoco pulled out of Venezuela in 2007. This latest asset grab is just going to make things worse. Venezuela’s oil industry is in serious decline. That leaves the rest of the world with a big problem…
Venezuela is critical to the future of global energy security. The country may hold the biggest oil reserves in the world after Saudi Arabia. We won’t be able to meet rising global energy demand unless new sources of oil production are found to replace them.
That’s forcing the oil companies to look at places that were completely off the radar just a few years ago…
The new energy hotspots
The big oil companies are now shifting their attention to Africa, Central Asia and the Arctic. There are still huge untapped energy reserves in those areas. But getting hold of them isn’t going to be easy. Russia considers Central Asia and the Arctic its own sphere of influence. And it is aggressively facing-down the other big powers that are trying to grab a slice of those regions’ energy reserves.
In fact, the search for new oil is getting so desperate that on Tuesday Russia warned that war could break out over oil reserves in the Arctic within the next ten years. And it is warning that conflict could break out in Central Asia as well.
This isn’t an empty threat either. Just think back to last August when Russian troops overran pro-Western Georgia. They were sending a clear signal to Georgia’s US and European allies to stay out of the region. And it was a warning to the other big power in Central Asia as well – China.
All of that has pushed the big powers to look for safer, more stable, long-term supplies of oil. And they know just where to find them – the Gulf of Guinea.
The West African countries like Nigeria, Gabon, Equatorial Guinea and Angola hold huge untapped reserves of oil. And it is open for business. These countries have been desperately poor for decades. They want foreign investment in their energy industries. And the international oil companies are piling in. That’s set off a massive investment boom in the region.
The US has publicly announced its policy of securing 25% of its oil imports from the Gulf of Guinea by 2012 - that’s just three years from now. And China has already invested more than $35 billion in African oil projects. And now the energy-hungry Indians and Japanese are moving-in as well.
The sheer scale of this investment has made West Africa the world’s new energy hotspot. But the average investor hasn’t a clue that it’s happening.
Here’s how to play West Africa’s energy boom
Given the size of the energy boom in West Africa, you should definitely have exposure to it in your investment portfolio. London-listed companies like Addax Petroleum and Tullow Oil look set to be long-term winners. They got in early and have made major oil discoveries in West Africa.
The African oil producers are excellent long-term investments, but I would wait for the markets to pull-back first. The price of oil has shot up since the start of this year. And the oil companies’ share prices have moved up with them. So there really isn’t as much value in the sector right now. But the markets look set for a sharp correction. So wait for the pull-back before getting in.
My own favourite play on the region’s energy boom is a small London-listed company. It owns a port in West Africa that is rapidly emerging as the key logistics hub of the region’s oil industry. Whether the price of oil goes up or down, oil companies will need its services. Given how fast West Africa’s energy industry is growing, this company is about to break into the big league. If I’m right about this, its share price is set to triple over the next twelve months. You can download the details of this investment opportunity by clicking here.
Best regards,
Manraaj Singh
For The Right Side
Editor’s note: Manraaj Singh is the Chief Investment Strategist for the Profit Hunter service. He focuses on under-researched investment opportunities in global markets. Click here to join him
MARKET NOTES
Why the retail upswing looks promising
BY SHIVVY ARORA
In the early stages of this recession, defensive sectors outperformed cyclicals by a long way. Investors were buying into businesses they perceived as solid. Then, we noticed that cyclicals were starting to gain momentum. And that pace could be set to increase now.
But, which cyclicals are doing the best?
Take a look at the chart below. It tracks the performance of the FTSE 350 General Retailers Index (red line) versus the FTSE 350 Travel & Leisure Index (green line) for the year-to-date. You can see that the retail industry is doing well. It’s up by close to 40%. However, not all cyclicals are good buys. The travel and leisure sector remains in a dismal state - and it’s significantly outperformed by retail.
Retailers are recovering well, but the travel sector remains a worry
Source: Financial Times
There’s some substance to retail’s bettered performance. According to the latest figures from the British Retail Consortium (BRC), retail sales are picking up at a good pace. Like-for-like sales are up 4.5% on last year’s April figures.
But as BRC director-general Stephen Robertson himself concedes: "Let's be cautious... Following a tough winter, there's some pent-up demand but there's no reason to think customers suddenly feel flush or eager to spend." Cyclical sectors are often unpredictable, and the tide could turn on a fresh bout of bad economic news. There’s clearly more to playing this recovery than simply choosing a cyclical sector at random. So, do your homework and pick carefully.
The Daily Reckoning- After the fall, there’s a bounce - and after the bounce, there’s a harder fall
BY BILL BONNERLondon, England
Friday, 15 May 2009
We left off yesterday, sitting on the edge of our seats: Is the bear market rally... the suckers’ rally... over? After a major fall in prices, there’s nothing more reliable than a bounce. And then, the bounce reliably gives way to another, harder fall.
Not that we’re looking forward to seeing poor Humpty Dumpty fall off the wall again. We just like to see things turn out they way they’re supposed to. Humpty has it coming.
The Dow fell 184 points on Wednesday. Maybe it marked the turning point. Maybe Mr. Market figures he’s lured in enough suckers. With stocks up 9 weeks in a row... and investors with a 37% gain... this would be a fairly typical bear trap.
Stocks are not cheap. There is no reason to buy them unless you think the economy will improve, raising corporate profits. How likely is that? Well it depends on what you think is going on. If you think this is just a pause in an otherwise-healthy economy... then, you might believe that things will pick up. That’s what’s happened after every recession since 1948. The average one lasted only about 10 months... with about a 2% decline in GDP. By those yardsticks, this one ought to be over.
But if believe that this is something more than a typical Post-WWII recession, then... watch out. The Great Depression lasted for nearly 4 years, taking 27% out of the GDP. And then, when it looked as though it was over, along came another downward whack in 1937 that lasted another 13 months…
READ ON
To read the Daily Reckoning in full, click here.
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