Monday, September 12, 2011

Oil prices would be $150/barrel by next summer-2012-----By Shan Saeed

Saudi Arabia is quitting oil business in the next 10 years. The world's richest oil state is doing the incredible...According to CEO-Saudi Aramco Khalid Al Falih, This is going to change [our] portfolio in very, very significant ways.

According to the Financial Times, Saudi Arabia, the crown kings of oil, have set in motion a truly incredible plan...A plan to drastically cut their use of crude, starting immediately...Says Khalid al-Falih, CEO of Saudi Aramco, Saudi Arabia's state-run giant: "Our goal is to reduce to the maximum extent possible the
utilization [of oil]." And it's not just talk.

Backing it up is a $130 BILLION investment from the Saudi royal family. A $130 BILLION earmark – more than Exxon's net income for the last three years combined – to make the switch. The switch to what, exactly? What could possibly make the world's richest oil state cut down on crude? That's where it really gets good...

I have been studying the energy markets for 12 years, and I am convinced that [this] will revolutionize the industry – and change the world – in the coming decades. It will prevent the rise of any new cartels. It will alter geopolitics.

A few months ago, President Obama and his cohorts around the world released 60 million barrels of oil in a shock move to stick it to the speculators — well, those speculators who weren't politically connected. As I write this, the price of West Texas crude is $88.05.

Obama's market manipulation did nothing aside from force the price per barrel down a few dollars in the short-term... just like Cash for Clunkers, the $8,000 payout to new home buyers, and QE2 or coming QE3. Price fixing by any other name doesn't work.

In the long run, prices are driven by supply and demand. And these days, supply is dropping and demand is picking up. In a recent Barron's cover story, Gene Epstein writes:

As oil producers' spare capacity gradually declines to worrisome levels, the average monthly price could reach a record $150 per barrel by next spring, with spikes to $165 or $170. With this, $4.50-a-gallon gasoline will become the norm. That will put a huge dent in consumer wallets, while ramping up the desirability of fuel-efficient cars. Furthermore, it adds that OPEC's spare capacity is decreasing. Oil prices are near their peak, while oil consumption as a share of GDP is well off its high. If the global economy manages to grow next year as expected, the price of oil will jump.

Oh Oil, Where Art Thou?

Where will the new oil come from to supply the ever-growing global population? About twelve weeks ago, there was a news item for Kenya to go to the second annual East African Oil Conference in Nairobi. The Paris of East Africa is dirty, dusty, and crowded, but you can't beat the sun, the cool mountain air, and the coffee, simply the best in the world...At this point where everyone who owns a lease is looking at their neighbors and encouraging them to sink the $115 million to drill for proof. All the while, the cost of exploration blocks is going up.

Liquefied Petroleum Gas

So far, the story in Kenya is one of vast petroleum found by its neighbors coupled with newly discovered off-shore gas fields. Gas in East Africa is going for twice the price it sells for in the United States, and demand is such that the volume is surging. Consumption of liquefied petroleum gas to triple by the end of next year.
The annual consumption will likely climb to 300,000 metric tons from 100,000 tons due to the construction of a “very big import and storage facility” in Mombasa by Africa Gas & Oil Co. The Kenyan oil infrastructure hasn't changed very much since the revolution in 1963..There is a lot of talk about new ports and storage facilities, and at least some of this is coming to pass.

Independence Day

Landlocked Sudan is the third biggest oil-producing nation of Africa, and 75% of its oil is produced in the south. As you may be aware, South Sudan just voted itself independent. The first thing that will happen is foreign direct investment will surge. Please keep an eye on Southern Sudanese oil policy. The plan is to divide up undeveloped oil fields and sell them off. Small cap wildcatters could make a fortune in this game. Of course, there are problems...

U.S. Sanctions to End

The United States government has had sanctions on Sudanese oil dating from 1997. But with the new independence and a split from the North, these sanctions will soon be lifted. If these are lifted, it will be a catalyst for share price appreciation.

A second problem is that the current oil pipelines flow through Northern Sudan. Southern Sudan is saying it wants to build pipelines through Kenya in East Africa so it can circumvent Khartoum entirely. This will again be bullish for Kenyan oil interests, service companies, and infrastructure builders.

I have written several reports on Africa and detailing the 17 oil blocks sold by Kenya and what the best prospects are. There is one company trading with a market cap of only $319.71 million. They have a farm out agreement with Tullow Oil, the great African exploration company, as well as four exploration blocks in Kenya and one in Ethiopia. Given my conversations with the experts in the African region, there is oil to be found in the East African Rift Valley.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK.

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