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151: Oil price $125/bbl and rising...how to take advantage in property


08-14-2007

PropertyInvesting.net team

Oil supply cannot keep up with demand – this is described in our Special Report 150. This report also provides a unique oil production forecast we have prepared which supports our prediction that as from early August 2007, oil prices will rise dramatically to at least $125/bbl by end 2008.

Now consider that oil demand remains strong despite oil prices rising from $23/bbl in 2000 to $72/bbl mid August 2007. Inflation remains under control – UK inflation dropped to 1.9% mid August despite these high oil prices.

·         China’s appetite for oil will not be dented – 200 million new cars are due to hit their streets in the next 5-10 years, so don’t expect demand to drop off

·         Global population is increasing – more people are buying cars and traveling longer distances as the global middle classes increase in almost all countries

·         A massive increase in truck transportation is occurring as developing countries industrialize and become consumer driven – goods, services, food, building materials – almost everything requires diesel (gasoil) to power to get from A to B – there is no alternative – diesel demand will sky-rocket 

In Western Europe – about 80% of petrol prices are tax. Surveys suggest practically no change in people’s driving behaviours or type of car they drive (e.g. engine size) unless petrol prices doubled. If the tax-take stays the same and global oil demand was not suppressed until petrol prices at the pumps double, this implies oil prices would have to rise six fold to $420/bbl (from $70/bbl) before behaviors would be significantly change in a high tax country like the UK!

With this as context, oil prices appear cheap for the average person! Ask yourself, if petrol-gas prices rose by say 50% more, would you change your car or drive less (cancel that holiday, or visit to see your family)?  The likely answer is – no. Even a 50% increase in pump prices implies an oil price of $245/bbl. Realistically therefore, because of supply problems and a demanding oil surge, we see prices rising conservatively to £125 / bbl by end 2008 – particularly if global GDP growth remains above 3% (it is currently 5%).

For UK citizens, it’s worth mentioning that in the early 1980s, one $ was worth one £. Now there are two $ to one £ - so UK citizens now get double the oil for their money.

The OPEC cartel control the supply of oil – but soon will not be able to pump enough to prevent oil price rising uncontrollably – it’s likely panic will start to set in - and governments will start hording oil. Any political or security situation will lead to spiking oil prices. Diesel and petrol shortages and supply disruptions will become common-place in many countries. This could happen even without a war or security situation somewhere in the world (e.g. Middle East).

So our advice is, read all our Special Reports on how to invest in property to hedge against an oil price shock. In addition, consider investing in oil companies and oil service companies – or oil as a commodity.

Some major oil towns and cities positively exposed to high oil prices (cities that will benefit) are:

·         London - England

·         Aberdeen – Scotland

·         Stavanger – Bergen – Oslo - Norway

·         Houston – Galveston – Dallas - USA

·         Dubai – Abu Dhabi - UAE

·         St Petersburg - Russia

·         Moscow - Russia

·         Muscat - Oman

·         Bakersfield, California - USA

·         Fort McMurray - Canada

And here is our very own prediction of supply (red) and demand (green) - as you can see, oil production levels out at about 83.5 million barrels of oil a day, whilst demand keeps growing as the global population rises and more vehicles are produced. Clearly, this imbalance is unsustainable and the key mechanism to close the gap is for oil prices to sky-rocket in order to dent demand. We believe prices would have to massively increase to dent demand. So the oil boom has only just begun. Investing in oil towns - if you believe these projections - is clearly a wise strategy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

We hope these new insights have been helpful – we seriously believe oil price are about to take off and want to warn you of this threat and opportunity.

If you have any comments on the analysis, predictions or insights, please contact us on enquiries@propertyinvesting.net, or write something our Weblog.

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