Today I bring you fifteen reasons why $150 oil and $5 gasoline are probable…
1. Japan is boosting oil and gas imports as their nuclear program melts down
In the past few months, the tsunami and nuclear disaster in Japan have slowed the need for energy. But in the coming weeks, oil imports are set to surge as the rebuilding gets underway and industrial production ramps up to meet demand.
2. On April 28th, Russia put a 44% tariff on oil exports
The people in Russia and their leaders have pointed fingers at the evil “Wall Street market speculator” and “oil price gougers” as the scapegoats responsible for high gasoline prices.
The political solution was to institute price controls. It has worked as well as expected…
Domestic prices that were now below the cost to produce oil caused sellers of energy to export their wares out of the country so that they could get a higher price. This in turn led to shortages within Russia. Buses and trucks stopped running due to lack of gasoline.
The politicians reacted by supplying even more government. The export tariff was raised to 44% to encourage domestic supply. This plan has failed; the gasoline producers would still be selling at a loss.
They are now sitting on their gas and waiting for better days.
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3. Rolling blackouts in China
China is attempting to stop inflation by setting low prices for oil. This has created rolling blackouts in key industrial provinces that will take half a percent off of GDP.
4. India is paying billions in subsidized prices
India is in a similar boat as China. The country imports 73% of their fuel. Inflation is inching towards the double digits.
Do they allow the fuel prices to float — and feel the inflation and suffer the corresponding riots… Or do they continue to spend billions they can’t afford to keep prices low?
5. Sudan rescue workers can’t move food because they have no gasoline
In war-torn Sudan, a border village was attacked last weekend by the North. Doctors Without Borders and other aid workers can’t get in to move food and shelter, due to the lack of gasoline for the trucks.
6. The Mongolian stock market lost 30%
Mongolia imports the vast majority of its gasoline from Russia — or did before April 28th…
The stock market fell in the past month because miners can’t run their gear without diesel. I was scheduled to speak at an investment conference in UB that may be canceled due to lack of transport.
That said, Mongolian-based oil companies are doing very well.
7. Kenya is rationing gasoline
Two weeks ago, I was in Kenya. Many gas stations didn’t have any more fuel to sell. The shortage lead the news for the entire week I was there.
The U.S. has an effective ban on offshore drilling. There have been no new offshore oil drilling permits issued by the Federal Government since the BP spill last summer.
8. Libya is in chaos
Our newest war in the Middle East has entered its fourth month. More infrastructure is destroyed daily.
9. Chavez nationalized failure
Venezuela oil production continues to slide due to corruption and poor management. From UPI:
State-run oil corporation PDVSA sacked half of the directors on its board after the energy giant’s pension fund was found to have lost $453 million in a Ponzi scheme linked to an investor in Connecticut. It was the latest of financial woes to strike the troubled oil company. The fraud apparently took place in 2004 but was discovered only recently.
10. No nukes
Germany is halting all nuclear power production by 2020; seven older plants have already been closed.
Nuclear energy is now supplying 25% of Germany’s energy needs.
Despite what you hear out of the green party, the majority of this power will be replaced by oil or natural gas — not by wind and solar.
11. Global oil production is flat and falling
click charts to enlarge
12. Exports are expected to decline
13. The U.S. dollar keeps falling
14. The Saudis can’t help
A senior Saudi oil official recently said the Kingdom “expects oil production to hold steady at an average of 8.7 million barrels per day to 2015.”
Domestic Saudi oil demand is increasing 10% per year. So expect a net decline in exports from our “friend” in Arabia.
And the final reason that oil stocks are going up…
15. Energy stocks have found support
Good hunting,
Christian DeHaemer
Editor, Energy & Capital
