By Keith Kohl
Energy and Capital|
At least we can say it was expected.
There's been a huge rush of speculators into the oil market, most of them looking for a hedge against the falling dollar. Monday, oil spiked to record $111.80 per barrel.
Soon after the record was hit, however, recession fears took over as oil prices dropped over $5 a barrel. So let me ask you, how can we expect speculators notto take some profits?
Now that $100 oil is a reality, we're told it's just some fluke.
"Don't worry, things will get back to normal." That's the attitude we're supposed to have, right? That's what we're told.
Well, I wouldn't bet on that just yet.
We can nearly assume oil prices won't retreat below $100 a barrel for a sustained period of time, even by drilling for oil in the ANWR, which I'll get to a little later. In fact, I really wouldn't be surprised if we never again pay under that benchmark for WTI (the light, sweet crude known as Western Texas Intermediate).
Let's take a look at how the U.S. is easing our concerns over where oil prices are headed and their proposed solution, drilling for oil in the Artic National Wildlife Refuge (ANWR).
Are Even Tighter Oil Markets Ahead?
The Energy Information Agency (EIA) released its Short-Term Energy Outlook last week. According to the report, we're going to see our petroleum consumption fall by 90,000 barrels per day in 2008. Furthermore, a production increase outside of OPEC is expected to ease oil prices over the next two years.
On a global scale, the EIA changed their minds again.
This time around they're predicting that world consumption will grow by 1.3 million bbl/d in both 2008 and 2009 (lowered from previous estimates). Not surprisingly, they've reported that the largest consumption growth is expected to come from China, India and the Middle East.
Well, at least we agree on something.
Even though the EIA is attempting to alleviate our concerns over $100/bbl oil, they're not doing a very good job. Oil prices have been able to break record after record in spite of oil inventories consistently rising!
Remember, inventories have only dropped once in over eight weeks.
I'm not too sure the U.S. government is too confident in the report.
Drilling for Oil in the ANWR
Although attempts to drill in the Arctic National Wildlife Refuge (ANWR) have failed in the past, another piece of legislation has reached the U.S. Senate to tap its resources. This time, drilling would be permitted if oil prices reach $125 a barrel.
It might not be hard to gather support considering oil almost hit $112 a barrel Tuesday, not to mention that we're in for more record gasoline prices once the summer driving season rolls around. Trust me, the problem won't be hitting $125 a barrel. I've already said that oil will hit $120 a barrel by July (if things keep going this way, we'll see them much sooner). There are, however, other things to consider.
Here's my problem with drilling in the Arctic: are the potential oil reserves in ANWR worth the decade-long development efforts?
Let's assume for a minute that the legislation passes and the environmental protesters (I can only imagine the protests over this legislation) are appeased. I know it's hard to do, but for now we'll just pretend.
We won't see a drop of production for nearly a decade, if not longer. There would have to be a massive amount of investment dollars to tap the Arctic. According to the USGS, a 1.9 million acre area of ANWR may hold up to 16 billion barrels of oil. The amount of oil may be staggering, but it will take years to set up the infrastructure to produce and transport Arctic oil to the U.S. Also, do you really think an extra million barrels per day in 2025 will be enough?
I didn't think so.
The good part is that the U.S. doesn't need to begin the long venture of Arctic drilling. We're looking to meet that demand somewhere else.
Is ANWR Oil a Bust?
I'll let you make up your own minds about the ethics of drilling for oil in the National Wildlife Refuge. Personally, I think drilling in ANWR is just another sign of how desperate the U.S. is to relieve its addiction to Middle Eastern oil.
Besides, there are several other areas I would rather focus my investments on.
Over the last few weeks we've seen how Canadian oil investments are starting to heat up. Soon I'm going to show you how the U.S. is preparing for a flood of Canadian oil.
P.S. The billions of barrels of oil underneath ANWR may never be developed, but there are other ways the U.S. will invest in its future demand for oil. If you're interested in grabbing some of these latest oil plays, feel free to check out the $20 Trillion Report.
______