Why I'm Still Buying Oil at $108
March 11, 2008
"Looks like crude oil broke another record this morning."
That was the first thing I heard when I got into the office. One glance at the screen confirmed it. During trading this morning, oil reached a high of $109.72 a barrel.
But let's be honest, are we really surprised to see the triple digit record this morning?
I hope not.
Usually, I can't help getting excited whenever oil prices break into new territory. Yet when I heard the news, I simply shrugged.
Something felt different this morning.
You see, now that oil prices are holding over $100 a barrel, I keep hearing that cheap oil is gone forever.
Personally, I think oil is still cheap.
Think about it for a minute...
Remember when people felt oil was too expensive at $60 a barrel? How about when it reached $80 a barrel? Now ask yourself, "How will I feel about $109.72 per barrel when prices hit $120 a barrel this Summer?"
The fact is that oil prices aren't done climbing. Like I told you last week, the future of crude oil all depends on who you're listening to.
Let's take a look at why a barrel of oil has a triple-digit price tag. Pinning the blame for $100 a barrel, however, is a little tougher than you might think. Everyone has their own excuses.
Here's what it comes down to:
Okay, so there's a little more to it than that, but let's focus on these for now.
- The global demand for oil is rising.
- The dollar continues to fall to record lows.
- OPEC refuses to raise production levels, insisting a U.S. recession will lower demand.
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Weak Dollars, Record Oil Prices
On the back of the falling U.S. dollar, oil prices have been able to stay above $100 a barrel. Whenever the dollar is trading at record lows, we can expect speculators to move into commodities. Investors are simply looking to protect themselves against the dollar's decline.
Even good news for the dollar couldn't keep oil prices down.
After the Fed announced a $200 billion lending program this morning, the dollar has been climbing away from record lows. Crude oil started to drop once the new Fed program was announced. Yet despite the news, oil prices have since rallied back over $108 a barrel.
Supply and Demand Fueling Oil Prices
As long as speculators are able to make a huge profit from trading oil, OPEC can keep insisting that speculators are driving the price of oil.
But speculators aren't the only scapegoat for OPEC. U.S. crude oil inventories have been growing over the last few months. Last week's inventory decline was the first in about two months.
Let's be honest for a second-- did you really expect OPEC to increase production levels last week?
I've told my readers before, OPEC is determined to defend record oil prices.
The problem, however, isn't only from increased oil demand. If the world's production has reached a plateau, making up for the soaring demand coming from China and India won't be easy, and if production remains stagnant over the next few years, we're going to be in serious trouble.
Investing in Rising Oil Prices
So what will rising oil prices mean for us?
Naturally, the first thing people think of is the pain they'll feel at the pump. I wouldn't depend on the U.S. government to help. When President Bush was asked about the prospect gas prices rising over $4 a gallon by summer, our Commander-and-Chief was perplexed. Apparently he hadn't heard about it.
Hopefully he doesn't plan on visiting California, where gasoline spiked earlier this month to over $5 a gallon in some areas.
Until next time,
P.S. Today's record oil prices give investors an unprecedented opportunity to make some huge gains in their portfolio. Believe me, making triple-digit gains are nothing new to my Energy and Capital readers. So if you're interested in sharing in the profits, I'd recommend checking out the $20 Trillion Report.