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A Good Way to Play Oil’s Boom

05/27/2008 12:00 am EST


Louis Navellier

Editor, Growth Investor, Breakthrough Stocks & Accelerated Profits

Louis Navellier, editor of Blue Chip Growth, says many things are keeping oil prices high, and he finds a leading oil and gas producer he says is undervalued.

Goldman Sachs rattled markets with its dire prediction that $150 to $200 per barrel crude oil is now possible within the next 6 to 24 months. Yikes!

Even though there has been recent evidence of slowing crude oil imports from China and the US, it will likely be very hard for much near-term price relief until after US demand moderates when the summer driving season ends. We are now entering the peak season for worldwide crude oil demand.

There is concern that high crude oil prices might squelch worldwide economic growth. As a result, a member of the Organization of Petroleum Exporting Countries (OPEC) signaled for the first time in months that the oil cartel might increase its output if prices keep rising.

The problem for OPEC is that prices have increasingly become largely unhinged from real market factors like supply and demand. As the US dollar declines and economic growth stagnates, many investment funds have moved into commodities like oil or gold, which they consider safer and more profitable than stocks.

But the political cost of rising energy prices, especially in the US, which is in the midst of a presidential election, is making OPEC's failure to boost crude oil production increasingly controversial, since a retaliatory backlash is very possible.

As economic growth in the US and other countries has slowed, gasoline demand is set to fall this year for the first time since 1991. Some OPEC producers are becoming increasingly uneasy about the runaway prices and are finding it difficult to maintain the cartel's current production quotas.

OPEC accounts for 40% of the world's oil exports, and is not scheduled to meet until September. The pressure is on for them to bolster production. It might not be long before they finally give in to industrialized leaders' requests.

Anadarko Petroleum (APC) explores, develops, and produces market oil, natural gas, and related products worldwide. The company has proven reserves of 1 billion barrels of crude oil and 8.5 trillion cubic feet of natural gas, more than 70% of which are located in the Continental US. Internationally, the company has substantial oil and gas interests in Algeria's Sahara Desert, Venezuela, and Western Canada.

The company recently offered a healthy production forecast and said nearly two years of reshaping its portfolio is paying off. Specifically, the company reaffirmed its 2008 production target of between 207 million and 212 million barrels of oil equivalent.

Anadarko said it expects to sustain annual production growth of 5% to 9% for the next several years. The stock [has] rallied impressively in the wake of its higher guidance and is a great buy under $84. (It closed above $76 Friday-Editor.)

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