Oil's Last Buying Opportunity

Keith Kohl

Written By Keith Kohl

Posted May 20, 2010

I don’t sleep as much as I should.

Perhaps the years of working third shift and taking classes full time have forever ruined any semblance of normal sleeping habits I could have developed…

Maybe it was the second job I picked up in college so I wouldn’t be indebted to the federal government for the rest of my life.

Whatever the reason, my ability to fall asleep has been completely destroyed. Under the best conditions, I can fall asleep by 4am; yet most nights, I lie staring restlessly at the faint blue light of my digital clock.

So you understand why I can sympathize with a reader of mine who described her own battle with insomnia.

Unlike my problem, her bout was due to stress from the recent market turmoil. And I’ll bet she wasn’t the only investor to lose a few hours of sleep during the last few weeks…

But I think she could let her mind relax and finally catch a few Z’s if she simply looked at this situation with a different perspective.

Now, I’ve been waiting for more than two years for the kind of opportunity we’re starting to see.

Two years ago, I was receiving a flood of e-mails similar to that from my insomnia-suffering reader. The authors of these e-mails couldn’t stand the pressure at the time any longer, and it was easy to see their panic. Unfortunately, they had sold every single position — along with the rest of the herd.

Those kind of buying opportunities don’t come very often… and when you think about it, nearly every company we came across was trading at record lows.

As if that weren’t enough, we were confident that oil at $33 per barrel would never last.

It didn’t.

Of course, we’ve made an absolute killing trading those oil and gas gems. And ever since the market bottomed in March 2009, I’ve often fantasized about driving off a used car lot in an ’81 DeLorean DMC-12, flux capacitor and all.

My point is, if you had the chance to go back to that period in time, I’m sure you would have made a few different investment decisions.

But luckily for us, I’m happy to inform my readers — including those losing sleep at night — that we might not need a time machine.

Someone upstairs must have been listening, and clearly they believe in second chances…

On the Brink of Collapse?

Before I go any further, you should understand what’s going on out there.

After meeting with a number of analysts recently, I had an overwhelming feeling that the apocalypse was upon us.

And with that line of thinking came a number of solutions — sell this, dump that, get rid of everything.

I was overcome with a sense of déjà-vu…

Not wanting to be rude, I simply smiled, nodded, and placated their rants. In the back of my mind, I knew I absolutely had to get out of that room as fast as possible.

The reason for my hasty exit was that their anxiety was completely unnecessary; to find the culprit for oil prices falling below $70 per barrel, look no further than the U.S. dollar.

If you ever wanted to know what could knock oil prices down 21% in a matter of weeks, take a look for yourself:

US Dollar chart 5-20

As expected, oil prices didn’t have much of a leg to stand on:

crude oil price chart 5-20
So is that it? Is it time to throw up our hands and walk away?


An Undeterred Bull

If you’re going to convince me that it’s the end of the world for my energy plays, you’ll have to do a little better than using a stronger dollar as the crux of your theory.

At the very least, I would need to see a drop in demand. And, according to data from the Energy Information Administration, that simply isn’t happening…

U.S. demand for petroleum production is on the rise — more than one million barrels per day compared to a year ago.

The latest offshore debacle involving BP, Transocean, and Haliburton is further proof of how far we’re willing to go for oil.

(Remember that the explosion occurred at a well that wasn’t very profitable; the only reason they’ve been producing oil there was its close proximity to a pipeline.)

Of course, I’m not the only energy bull in the room. I know there’s someone else that agrees with me.

That someone is China.

Ever since oil prices crashed to $33 per barrel in December 2008, China has been on a buying spree, dipping their hand in nearly every major energy source on the planet.

During the last two years, China has expanded their oil and gas reserves over and over again.

From Iran to Canada, there is no place that China considers off-limits:

  • May 18, 2010: CNPC, China’s largest oil firm, acquires a 35% stake in Syria oil from Shell.

  • April, 2010: China spends $5 billion stake in the Canadian oil sands. The purchase gives the Chinese a 9% share in Syncrude Canada.

  • May, 2010: China closes a deal to develop the Missan oil fields in Southern Iraq. Current production from the Missan field is 100,000 barrels per day.

  • September, 2009: China invests $16 billion barrels on oil exploration in Venezuela.

  • Today, PetroChina just announced plans to invest $60 billion in overseas oil and gas output, hoping to add about 4 million barrels a day to current production.

The list goes on, but I think you get the point…

A Buying Opportunity You May Not See Again

Although I can’t pinpoint for you the exact minute at which things will turn around, one thing I’m sure of is that my energy plays have in common — nearly all of them are oversold by the herd.

Let’s face it: You and I both know the door is wide open for investors. The only question now is where to look for that door.

My readers and I have been riding these volatility waves for years, and we’re about to double-down on some of our best oil and gas picks.

Our latest oil play, for example, has put us in a win-win situation. Not only can we take advantage of the oversold conditions, but the fact is that this tiny, unknown company would be turning a healthy profit if oil were to collapse to $35 per barrel again… an event that is next to impossible, especially considering that demand is rising. I’ve put all of the details for you in this special report.

Once my distressed and overtired reader took a few deep breaths and changed her perspective, I could tell she was seeing the big picture.

There are very good reasons why we buy the fear and sell the greed; one which cannot be understated is to avoid restless nights of clock-watching.

Tonight, forget counting sheep… I’ll be sleeping like a baby.

Until next time,

keith kohl

Keith Kohl

Editor, Energy and Capital

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