A friend of mine just sent me an promo for a publication suggesting there would be an oil crisis, and oil is going to $US220/barrel before 2011. I tend to think it will reach those levels too, however I suspect its going to be more like 2011-2012 than 'before 2011'.
Eventually US/Britain will be forced to act to stop Iran building nuclear weapons. That will result in missile strikes on nuclear facilities in Iran, which will cause Iran to cease oil shipments. It would probably lead to ground assault on Iran. The government there is very unpopular, so its likely to be a very short-lived battle. Easier than Afghanistan or Iraq.
If you are looking for exposure to this sector, I recommend the coal seam methane (CSM) producers, particularly the emerging companies like ASX.BUL and ASX.COI, and of course gas & gold correlates strongly with oil prices, so you might like AAM (producer), IGR, ADU (emerging).
I would say any such escalation of this issue is likely to be 6-12 months away. The charts probably offer a clue, but I'm not looking at one at the moment. Oil production is the better exposure, however coal seam gas is generally safer exposure. I actually prefer gold exposure on this issue.
The great news about coal seam gas in Qld is that:
1. You can be sure its there because the coal is there and its part of the same process of formation, i.e. coalification, so the gas is there as well, its just finding the optimum conditions for recovery.
2. They are building several LNG facilities in Qld to export the gas
3. Strong population growth in Qld, so more industry and power plants
4. International pricing of exportable product
The bad news for CSM is:
1. The development lead time to build the LNG facilities - its looking unlikely to be completed before the 3rd (arguably 4th) oil crisis, so I'd go with gold rather than these CSM emerging producers. In Australia, you could look at Woodside, since it exports gas, though it would not benefit fully because of long term price contracts. Leveraged exposure to international oil producers is also a possibility through contracts for difference. i.e. CMCMarkets.com, or trade options when the charts suggest. Actually though, for the best exposure, international commodities trading is the best approach. Leverage and no project risk. So we are looking for a chart signal to buy.
2. Pipeline development issues - lead times, economic justifications.
The bad news is that such a crisis is going to undermine global growth. It will be like a rise in interest rates. :) And those politicians thought they could control the market. hehe.
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Andrew Sheldon www.sheldonthinks.com
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