"How can we get out of these higher oil prices?"

A few months ago, one of my readers asked me this question. At the time, oil was trading below $110 a barrel. Soon after, oil went on another run, pushing far past the $120 a barrel I was expecting. I also mentioned that if oil prices experience a similar increase compared to last year, a barrel of crude would cost approximately $140 by July.

Last week, that prediction nearly became a reality after after July contracts for light, sweet crude reached $135.09 per barrel. I'm sure some of you watched crude reach that record high.

I believe T. Boone Pickens put it best recently, saying that 85 million barrels per day is about good as supply can get and 87 million per day is the demand. He went so far as to predict that oil will reach $150 a barrel in 2008. Even Goldman Sachs revised their price forecast to $141 a barrel for the second half of the year.

Yet ever since oil prices broke past the $100 per barrel benchmark in 2007, everyone has an excuse for the oil price spike. Not surprisingly, the blame always seems to be on someone else.

Oil Price Spike: The Global Blame Game

According to the Energy Information Administration (EIA), the spot price for crude oil last year was $64.93 per barrel. I know, it's probably hard to remember the last time you saw crude trading that low.

So why are prices so high?

Well, that all depends on who you ask.

The U.S. Congress has put the blame on OPEC's shoulders. Their solution was to pass a bill to sue OPEC (feel free to pause and laugh along with me). OPEC, on the other hand, simply points to the weak dollar as the culprit. Now add on the geopolitical violence (Nigeria's shut-in oil production comes immediately to mind), or even potential weather-related threats like hurricanes, and you have a pretty good idea of what can go wrong.

All of these factors, however, pale in comparison to the concern over supply demand. Don't get me wrong, dear reader, all of those things can influence the price of crude. But the one driving force we need to worry about is the growing gap between supply and demand.

When the International Energy Agency releases its report in November, don't be shocked when it drastically adjusts its oil forecast. As you may know, the IEA previously announced t that world oil supplies would increase to 116 million barrels per day by 2030.

Personally, I think that supply reaching 116 million barrels per day is about as likely as oil falling back to $20 barrel. Let's face it, it's not going to happen. I honestly don't see supplies reaching much over 90 million barrels per day.

That's only one part of the problem. Domestic consumption in the world's top oil-producing countries will eventually lead to less oil to export. Furthermore, demand from China and India is growing at a rapid pace. And if the U.S. refuses to pay the higher price of oil, I'm sure somebody will be there to scoop it up.

Easing the Pain of $140 Oil

The answer to my reader's question wasn't some miracle solution to our rapidly growing demand. We're beyond that point. No matter how you look at it, there really isn't a single answer to the problem. You see, it's not a matter of "getting out" of these oil prices.

Rather, we need to accept it.

The fact is that oil prices will keep on breaking records. Do you honestly believe prices are going to fall, especially considering we're now officially into the summer driving season? Last year, I always looked forward to reading some email warning me that oil prices are on the verge of collapsing back to around $30 or $40 per barrel.

And to be honest, if I had acted on their advice I would have lost a ton of money.

Fortunately for you, you don't have to feel the bite of higher oil prices, even when crude surpasses $200 a barrel over the next few years. Believe me, you're not going suddenly wake up one day to a world without oil. Energy is not an overnight crisis.

Depending on how drastic the IEA's revisions are, Boone's $150/barrel prediction is well within reach. Regardless of how oil performs, the world will have to spend trillions of dollars on its infrastructure. In the words of Fatih Birol (the IEA's chief economist), "The oil investments required may be much, much higher than what people assume..."

Well, if you can't beat 'em, join 'em. Many of my Energy and Capital readers have had tremendous success investing in the several unconventional plays at the $20 Trillion Report. If you're interested, I'd suggest checking it out before their next round of profits rolls in.

Until next time,

Keith Kohl

Energy and Capital

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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I read your reports evertime I see something that pertains to Crude Prices, and FUEL DEMANDS. I see a lot of speculations as to what is casuing the rise of crude, with also further speculation on who s to blame for rising cost of fuel. I never or rarily have I read anthing from your publications referencing a possible solution to the crisis. All I read is Investing right now on the Bakken is a good buy. Maybe so, but I am not trying to make money, I am concerned where this type of buying is going to lead us. You have indicated tha someone said Crude will rise to $141.00 a barrel by July. That's great news for the investor, but what about the consumer? Doesn't anyone care what is going to happen to the Regular Wage Earner, when and if the predicted high of $200.00 a barrel is reached? What is going to happen to the Economy of the United States, and the poor countries with millions and milions of people to feed, clothe, and produce food products?? There must be a solution to this crisis. Will DEMAND if lessened help reduce or roll back the price of crude?? Will opening the capped oil fields in America assist in lowering fuel prices?? Will the Bakken Fields once on line, and producing crude assist in reducing cost per barrel?? Will alternate means of power, Such as Wind Power Plants, Solar Energy Electrical Plants, Ocean Power sources, and other sources of alternative fuels assist in lowering the price of crude?? Are all these sources of power, and energy just pure speculation, hypathetical or are they factual???I know your investors are using their funds for making money, without the thought what is going to happen to working stiff trying to make ends meet anyway they can to pay their mortgages, Electrical, medical insurances, and put food on the table. We have just about eliminated the middle class familiy from our society. What we have the most of is the poor person living on unemployment income and income near or below poverty level. The Rich are getting Richer everyday, and it has always been speculated in my lifetime that the only concern many of the wealthy have is remaining that way with little or no concern for the little guy. What is going to happen to the little guy??? I can't get them out of my mind. They are the ones who fight our wars, and die for our country and freedom. The grave markers in the National Cemetaries show who are the heros of wars of the present and past. Very few millionaires are there. These are Hollow Grounds, and possess the best of the best. Most of them were poor, and went to war because they wanted their loved ones protected from the eveil doers in the world. This is primarily the reason I am concerned for the little guy, many of hem have given the ultimate price, and their families deserve the most for which these troops died for.
I would like to know where do we go from here?? How can we make life a little easier for the poor stiff to get by??? What can we do to improve tne Economy for these people that deserve more than what they have??? Will we ever see any light at the end of tunnel, or is this crisis hopelessly unchangeable??? We need some answers, and we need whatever actions that will improve our life style for the better. If we are not at fault for the crisis why should we be responsible for the world??? China, India, and Russia are the countries that are the largest consumers of fuels in the world, why should we pay for their high volumn use??? How about taking the time to give me some answers pertaining to my questions herein.

Demand is falling for weeks now, China & India subsidize their products, & once that ends, their demand will drop to.

Institutional funds, even the Global Sovereign Funds create an artificial demand, but there's talk of margin adjustment now. It was done for the Silver surge, when the Hunt Bros. tried to coyner that market.

Your one-sided take is you talking your book, & leaving out too many facts.

You get only one star, as if that matters for squat!

What about the Bakken Oil Field?
This has been fairly quiet, what I mean is no big news stories or news paper issues?

As far as I know part of this is under Canadian Soil, Bakken Oil Field," which stretches across North Dakota, Montana and southeastern Saskatchewan.

So Why are we not tapping this?
Is it because the oil companies etc have not ripped everyone off enough from false oil,supply and demand?

If governments in the US and Canada were serious about global warming, green house affect, and the use of oil. Then there would be a lot more incentives for the public to purchase solar or wind power systems. The automakers would get off their asses and make a real fuel efficent vehicle, not just a small useless piece of junk.
Forget the dam carbon tax bullshit, thats just another tax grab, the results of which will lead no where.

Well I guess we all know why.
Governments, Oil Companies and the auto industry are all in bed together. Each making big bucks from the way things are.
You certainly would not see the oil companies allowing incentives for alternatives, solar, wind, and all the rest of alternate energy sources that are slowly coming to the attention of the public.
Just remember we are all in this together.

Hi Kieth

I am from south Africa, a country like America where you can drive a whole day and not get to the end, unlike the UK, and at speed to.

I have subscribed to your newsletter two weeks ago and find it very informative. I do not know oil, except for the fact that I like fast cars and driving - the regular petrol head and my concern obviously for the product to power my wheels.

What intriges me is the Bakken fields and a question pop into my mind every time I read of this 500 million barrels and 41 years of oil for the USA.

I understand it will help you guys to be self sufficient - but when? Obviously, it will take the arab's dollars away and give them a big fat kick in the face if they sit with oil (well, if China does not buy it all?) in thier laps and no USA buying with the 7 ltr V8 fuel gusslers and aircons on 24/7?

Please help me out here.

Thanks lots

PS. Come visit Cape Town and check out our beautifull country.

Frik Steyn
Cape Town
South Africa