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The Return of $100 Oil

Brian Hicks

Written By Brian Hicks

Posted October 27, 2010

If the Fed had half a brain… it’d be dangerous.

But they fail to see that another trillion dollar injection will do more harm than good.

The Fed has already driven stocks and gold to new nosebleed heights — first on the idea of QE2, and then pretty much on the promise of one.

But for crying out loud, the last one did very little — if anything — to bolster the economy, let alone help unemployment.

And now they’re considering doing the same thing a second time? Another one will only do more of the same…

Only we’ll be stuck with a hyper-inflationary crapstorm of $2,000 gold, $100 oil, and unaffordable food prices when dollars are dropped from above.

But let’s be real here.

The Fed is just kicking the same can down the road. It’s building this crazy house of cards on top of the collapsed mess of the last one.

It wouldn’t matter if the Fed dropped $10 trillion into the system; every Fed bailout and money pump has lead to the same garbage.

Bernanke and his curmudgeons have to see that.

And this idea that inflation isn’t a problem is bogus — yet they keep insisting inflation is too low, as food and oil prices continue to rise…

Sure, core inflation stands just above 1.1% — but it doesn’t account for food and energy. 

Real inflation in this country, according to Shadow Government Statistics, pegs it closer to 8.5%.

And it’ll only get worse if China, Japan, Russia, India and Brazil move to abandon the dollar for a multi-national currency.

But the 1.1% figure is used to convince Americans that money supply needs to expand further to boost the economy. 

We’re all sick of hearing about the Fed’s follies

Look, I didn’t set out to write another article about the bumbling chaos at the Fed…

You’re probably as sick of this story as I am. But it’s an unavoidable topic.

The Fed is deliberately destroying the dollar, thinking it’ll help our economy. The annihilation of the dollar will result in even more inconceivable price moves in commodities.

Treasury Secretary Tim Geithner just said the U.S. would never deliberately down the dollar to increase its competitive edge… And yet, QE2 would do just that.

(Call me crazy, but I was under the impression that the Fed is supposed to protect our currency.)

Again, I didn’t set out to write about the Fed follies again.

What I really want to focus on today is the probable move of oil back to $100+ a barrel.

Why $100 oil will return

Thanks to a weaker dollar, OPEC wants $100 oil because the dollar is hurting its members.

Venezuelan Energy and Oil Minister Rafael Ramirez, for one, believes, “The U.S. currency’s weakness means the ‘real price’ of oil is about $20 less than current levels.”

Other OPEC members may not be as forthcoming, but the dollar damage is crushing them all.

The U.S., meanwhile, is looking to devalue the dollar even more…

But mark these words: Oil at $100 would be very damaging to a U.S. recovery.

You can play higher oil prices by buying oil stocks like Transocean (RIG) and beaten-down Anadarko (APC).

Or, as the price of oil spikes on a weaker dollar, we’re likely to see attention shifted to domestic oil companies looking to set up shop in what could be the only safe, stable place left to drill for oil: North America.

Under-the-radar companies have been busy developing drilling techniques right here in North America, so that they can successfully extract what the World Energy Council has recently been referring to as the largest oil deposits on the planet…

You can read the details on these companies in this report.

Higher oil and a weaker dollar will also drive up the cost of gas and heating oil, and will even increase inflationary risks in China, the largest importer of crude.

It also means higher food costs.

I wrote in detail about agflation last week; food prices will be affected as a result of higher oil and a weaker greenback:

  • Agricultural raw materials are already up 24%
  • Coffee is up 45%
  • Barley is up 32%
  • Oranges are up 35%
  • Beef is up 23%
  • Pork is up 68%
  • Salmon is up 30%
  • Sugar is up 24%

And while you won’t be smiling at the end of the grocery store checkout line anytime soon… there is opportunity for profit in all of this mess…

You can play higher food costs with the Market Vectors Agribusiness ETF (MOO) up to $52. It holds Monsanto (MON) and Potash (POT).

The hits just keep on comin’

Don’t forget about the strikes in France; they have already interrupted the oil flow into that country.

Once the strikes are over and done with, inventories will need to be restocked — and up goes oil.

Plus, China demand is still exploding… And once the Fed floods us with dollars again, oil will spike — and fast.

My advice?

Don’t miss out on your chance to profit from $100 oil. You can read all about in my latest report.

Ian L. Cooper
Energy and Capital

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