Global Changes and the Future of Oil

09/27/2017 5:00 am EST

Focus: ENERGY

Jim Powell

Principal Analyst, Global Changes & Opportunities

Today, oil is about $50 a barrel. In July 2008 the price was $149.27 a barrel. You don’t need a degree in math to see that oil is at a low point in its cycle, asserts Jim Powell, editor of Global Changes & Opportunities Report.


Get Top Pros' Top Picks, MoneyShow’s free investing newsletter »


Neither does anyone need to have a genius IQ to know that energy prices are far more likely to rise from this point than they are to fall. With oil priced only a third of where it was nine years ago, the potential for a doubling over the next few years seems to be quite high.

China's exploding appetite for oil could make it happen all by itself without any assistance from the expanding global economy.


Advertisement


Well before the five years are up I think we will get at least one big scare that will send energy prices and investor’s profits soaring.

I am particularly worried about an energy shock from Saudi Arabia that produces almost 23% of the world’s oil. The Arab Spring that swept through the Middle East and North Africa in 2010-2011 spared the kingdom because the country’s oil wealth kept its generous social programs well funded.

Throughout the rest of the country, there is growing unrest with the strict Wahhabis’ religious rules about dating, employment, entertainment, travel, and other aspects of life. Young Saudis are particularly tired of being kept from what most of their contemporaries enjoy doing nearly everywhere else in the world.

Lastly, today’s low oil prices won’t support the lavish giveaway programs that kept the Saudi public placated a few years ago.

The biggest potential bombshell is the Saudis may not have nearly as much remaining oil as they want the world to believe. The exact numbers are a closely guarded secret, which increases the suspicion that the kingdom’s oil reserves are dwindling.

At the first reliable sign that the Saudis are close to sucking air on their oil straws, the price of oil will skyrocket — and it will happen quickly. As such, I continue to recommend ExxonMobil (XOM) as the best blue chip energy company to buy.

Exxon is the largest integrated oil company in the world that develops its own reserves, does most of its own refining, and retails its products directly to the public. Outside companies have little opportunity to take a bite out of Exxon’s profits.

Investors who are willing to wait somewhat longer for what should be even bigger gains should consider Diamond Offshore Drilling (DO). Exploration and development spending doesn’t usually begin to ramp up until oil prices go up — and stay up for several months.

Because those conditions are not here as yet, Diamond Offshore’s stock price is on the floor. When the outlook for oil improves, I think the stock will soar.

Subscribe to Jim Powell's Global Changes & Opportunities Report here…

Related Articles on ENERGY

Keyword Image
Saudis, Oil and ETFs
12/11/2017 5:00 am EST

Under the guise of clamping down on “widespread corruption,” Prince Mohammed bin Salman ...