Oil Will Rally

Just about every
question I can come up with right now can be answered by the
statement “Oil is going to rally.”

If the euro strengthens, it
means that investors see progress on the debt issues and there. And
it will indicate that the European Union will not be dismantled
anytime soon. Any gains in the euro will come at the expense of the
U.S. dollar. So based on stability in Europe, or the relative value
of the U.S. dollar, oil will rally.

China just surprised economists
with a stronger than expected export data for May. The implication
is that global demand isn’t as weak as expected. And demand
in China is probably stronger than expected. That means oil will
rally.

And what if china revalues the
yuan at a higher rate? Well, the yuan is pegged to the U.S. dollar,
so gains for the yuan means weakness for the dollar. Oil will
rally.

The potential
for supply disruptions and drilling moratoriums in the Gulf of
Mexico after BPs disaster suggest that oil will rally. And the
stock prices of land-based producers will trade higher as they have
much less risk than deepwater drillers.

But what about offshore
drilling? Will it stop altogether? No. But more safety restrictions
and inspections will raise the cost of drilling. And that will very
likely be passed onto the consumer in the form of higher oil
prices.

For the last
few years, the Energy Information Agency (EIA) has maintained a
rosy future for oil supply. In 2008, the EIA estimated that global
supply would hit between 100 and 105 million barrels a day in 2020,
and 110-115 million barrels a day in 2030.

But now, with the latest release
of its annual report International Energy Outlook
for 2010, the EIA is lowering its
production estimates dramatically.

Oil supplies may only be between
90 and 95 million barrels a day in 2020, and 100-105 million
barrels a day in 2030. These estimates are between 10 and 15
million barrels a day lower than previous
estimates.

Noted energy economist and
editor of Energy World Profits
advisory service
Gregor Macdonald has been questioning the EIA’s overly
optimistic production estimates for years.

“You will recall the story that
the EIA had either been fudging data or at the very least
downplaying data, in an effort to diminish the urgency of peak
oil,” said Macdonald. “The forecasting of the EIA has been abysmal
this decade. The actual growth of global crude oil supply compared
to their forecasts has been so far off the mark that the agency
probably shouldn’t have even bothered to produce
forecasts.”

Macdonald continued, “Non-OPEC
oil production peaked five year ago, in 2005, at 42 million barrels
a day, and is currently on care and maintenance. Not only is Peak
Oil here, it’s probably already past.”

The latest revised estimates
from the EIA suggest that Gregor Macdonald is correct: oil supplies
cannot increase. If so, his forecast that oil prices could hit $200
by the next presidential election could become
reality.

Even the
weather forecasters are behind oil prices. They are calling for a
very active hurricane season. And that will mean further
disruptions to Gulf of Mexico supply. That means higher oil
prices.

Right now,
land-based oil stocks are the biggest “no-brainer”
investment I can think of. I’ve been recommending Bakken oil
producers to my Energy World
Profits readers for the last few
weeks.

The Bakken is part of a larger
shale formation called the Williston Basin that stretches from
Canada down into North Dakota and Wyoming. There are 5 billion
barrels of confirmed recoverable oil in the Bakken. And if you
include the entire Williston basin, the number is
higher.

All of the Bakken stocks
I’ve recommended are up between 3% and 8% today. And
they’ve got a lot more room to run as their Bakken production
operations expand and oil prices head higher.

My favorite Bakken stock has 23
wells producing right now, including the 2 of the 3 highest
producing wells in the entire region. The company’s costs are
$14 a barrel. And its aggressive drilling program calls for the
addition of over 400 more wells in the next 11 years. Quite simply,
this company is a cash cow. And investors will be handsomely
rewarded in the years to come.

You can access my report on
Bakken oil producers HERE. But even if you don’t buy into the
Bakken region, get some exposure to oil. It’s going
higher.