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Profit from Crisis in the Middle East

Oil Explorers are Buyout Targets

Posted March 3, 2011

The Saudi Arabian stock market is getting crushed. It's down more than 15% in two days.

Dubai's bourse is at a low last seen in 2003. Tunisian markets remain closed.

Egyptian stocks fell more than 17% before it was shut down last month, though Egyptian markets are set to reopen March 6.

Meanwhile, fear has pushed Brent crude ever higher...

Oil ETF

bno march 31

This has been helped along by the U.S. dollar, which is in a clear bear market.

~~SIGNUP_EAC~~

Dollar bullish ETF

dollar etf 3

Though as you can see by the chart, the dollar is sitting at resistance and should bounce before heading lower.

Buy fear

The unrest in the Middle East is spreading. There is even a call for a “day of rage” on March 11th in Saudi Arabia.

The Saudis produce 9 million barrels of oil a day. They say they can raise that number to more than 12 million a bpd, but most oil people doubt this.

Their fields are aging. New ones aren't there to be found.

The king is 86 years old and in poor health. The succession is in doubt... Thirty-one percent of the nation's inhabitants are foreign nationals.

Youth unemployment is more than 30%. The per capita income reported in 2008 was $20,000, but this is distributed unevenly.

Times are ripe for revolution.

But if I was to guess, the carrot in the name of wage increases — coupled with the stick of the secret police — will keep the House of Saud around for a few more years.

That said, a halt or slow down of Middle Eastern oil exports would cause a global shock not seen since the early 1970s.

One of the mainstays off all presidential administrations after Carter has been to ensure Middle Eastern oil.

Just like people in Chicago will vote out anyone who can't plow the streets after a snow storm, U.S. voters will not vote for a president when gasoline is unavailable or unaffordable.

And yet Obama seems to want $5, $6 or even $9 dollar gasoline in order to vindicate his green energy policies.

Meanwhile, back in the Middle East...

The great irony here is that as oil prices go up, those that have oil to sell will see higher margins and fatter profits.

Those same equities that are now getting crushed as investors flee the Middle East will be the most to benefit when some form of stability returns.

My trading service, Crisis & Opportunity, makes readers a lot of money via investments in places most investors fear to tread.

This investment philosophy works. It has produced 20 winning gains since January 2010 — almost all of them double-baggers, and seven triple-digit winners in there... And those are just the closed positions.

Many analysts would say that you have to turn defensive in difficult times. I take the opposite approach.

The best defense is a good offense.

And right now, the best oil plays are in Central Asia and Southern Africa. These are the last easy-to-reach oil reserves on earth.

Many of these exploration companies are trading at penny stock prices.

One company — Canada's UNX Energy (UNX.V) — just got a buyout offer for $781 million.

unx

But get this: UNX has a few blocks offshore Namibia, but has never even drilled a hole!

Things are heating up for oil explorers. Those with rights to oil blocks are sitting in the catbird seat.

I have been — and will continue to be — buying these stocks over the next few weeks.

Dead cat bounce

At some point, equities in the countries now seething with revolution will be tremendous buys.

For those who want to take a more conventional approach to buying the fear in the Middle East, take a look at T. Rowe Prices' Africa & Middle East Fund (TRAMX):

tramx

It is far too early to buy now, as it is slicing through resistance and the MACD is decidedly bearish.

TRAMX's top three holdings are Saudi Basic Industries, Bank Audi SAL-Audi Saradar Group, and DP World.

When the fear is at its height and this bad boy hits $4.25, it will be an easy double on the dead cat bounce.

After all, the companies and countries that are getting hit the hardest will have the most to benefit from high oil prices...

Sincerely,

chris sig

Christian DeHaemer
Editor, Energy & Capital

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