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Energy Insights:95: Big Oil Companies - confessions begin

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95: Big Oil Companies - confessions begin


Of Saints and Sinners, Big Oil Begins Its Confession

Brian Hicks2007-11-11
By Brian Hicks  

Editor's Note:This article was originally published in Wealth Daily last Friday. We published it in Wealth Daily first because WD was the first letter we launched... back in July 2004. WD was also the letter where we began telling the market about a crisis we saw brewing on the horizon: Peak Oil.

However, what happened last week is far too important to publish in just one of our letters. Because of the dire nature the world finds itself over declining "cheap" oil reserves, we at Angel Publishing have an obligation to present our thesis to every reader we have.

In addition, your publisher has been making the rounds on Fox, CNBC, and Bloomberg, preaching the gospel of Peak Oil.

In fact, last week, I was on television 3 different times, 2 of which pertained to Peak Oil. I haven't shown these interviews to the Energy and Capital family yet. But now you can view them at your convenience:


Fox Business:

But before you do that, please take a moment to read "Of Saints and Sinners: Big Oil Begins Its Confession."

Dear Energy and Capital Reader:

Last week was an epiphany for the market, validation for us at Energy and Capital, and a confessional for Big Oil.

Forgive me, World, for I have sinned . . . it's been 75 years since my last confession.

Okay, here we go.

First into the confessional last week was the International Energy Agency (IEA). As we reported in Wednesday's Wealth Daily on higher oil prices, the usually sanguine IEA sounded unusually negative and alarmist about the recent price spikes in oil:

According to the IEA's World Energy Outlook for 2007:

"An abrupt escalation of oil prices after 2015 as a result of a global supply crisis cannot be ruled out."

" . . . it is very uncertain whether new oil production in the period to 2015 will be enough to compensate for the natural falloff in output from existing oil fields and keep pace with the projected increase in demand."

"The consequences of unfettered growth in world energy demand are alarming."


I want you to think about something. Oil prices are already approaching $100 a barrel. If the IEA is warning us about an "an abrupt escalation of oil prices," what exactly does that mean?!

Could it mean $250 a barrel . . . $300 a barrel . . . $480 a barrel?


Right now, with oil trading for $95 a barrel, we're paying the equivalent of 15 cents a cup.

There's 667 cups in every barrel of oil. So $95 divided by 667 = $0.15.

No matter how you spin it or slice it, oil is still insanely cheap. I know that sounds absurd, but it's true.

So will oil selling for $0.15 a cup, the price of oil could (will) go way up . . . to levels unimaginable.

OK, next into the confessional is Tony Hayward, CEO of British Petroleum, BP plc (NYSE:BP).

Forgive me, Shareholders, for we've cooked the reserve numbers.

Here's what Tony confessed yesterday:

"Every geopolitical event causes a spike in the price [in oil], but these spikes only happen because the underlying market is itself tight. For the medium term, the era of cheap energy is behind us."

For penance, I want you to read Lies, Damn Lies and Statistics: The Manipulation of Public Opinion in America. Read it three times.

Let's move onto the next sinner.

Forgive me, Shareholders, for we told you everything was okay, when in fact we knew the world was heading into the abyss.

From the CEO of ConocoPhillips (NYSE:COP), Jim Mulva...

"Oil and gas production fell at all of the largest publicly traded oil companies in the third quarter, as aging oil fields, declining access and soaring costs for drilling services took their toll on output.

"I don't think we're going to see the supply go over 100 million barrels a day. Where is it all going to come from?" --November 8, 2007

Good question, Jim.

For your honesty, your company's stock will sell off 23%.

Last, but not least, is George Bush.

Here's an exchange he had with a journalist two days ago:

Question: "Mr. President, with oil approaching $100 a barrel, are you concerned that your hard words for Iran on its nuclear program are helping drive up oil prices, which can end up hurting the U.S. economy?"

Bush: "No. I believe oil prices are going up because the demand for oil outstrips the supply for oil. Oil is going up because developing countries still use a lot of oil. Oil is going up because we use too much oil, and the capacity to replace reserves is dwindling. That's why the price of oil is going up." --November 7, 2007


How about a 31% approval rating?

Okay, now for some saints.

Before you read on, I want to disclose for the record that we weren't the first to talk about peak oil. Not even close. For that you have to go all the way back to 1956 when geologist M. King Hubbert predicted that US oil production would peak in the early 1970s.

However, we believe were one of the first to see the silver lining in Peak Oil: Namely that renewable and alternative energy would finally have its day in the sun. It's the reason we created 3 investment services dedicated to it: Green Chips Stocks, Alternative Energy Speculator and Alternative Energy Trader.

It's also the reason we launched The $20 Trillion Report.

A lot of people ask me about the name, The $20 Trillion Report. What does it mean?

Well, last year, the IEA in its World Energy Outlook Report for 2006 estimated that the world needs to invest $20 trillion over the next 25 years to meet surging, global energy demand.

If this is true (and count us among the believers), then it represents one of the greatest investment opportunities of the 21st Century. So there you go.

Okay, here's a collection of quotes from Wealth Daily and Energy & Capital over the last three years:

"The fact is that we're at a tipping point. The world's oil supply has been flat while demand is growing up to 3% annually.

"Will we see a barrel of oil cost $100?

"That's a possibility. As I said before, the next year is going to test the theory of peak oil."
--Keith Kohl, August 7, 2007

" . . . heck you can kiss $45 a barrel goodbye . . . maybe even $50! In fact, we're probably facing a price spike between $80 to $100 a barrel within the next 24 months."
--Brian Hicks, January 18, 2006

"Our resident energy expert, Mike Schaefer, believes that oil prices will continue their rise . . . heading to at least $80 near term . . . then to $105 a barrel in the next three years."
--Brian Hicks, February 7, 2006

" . . . I think these estimates are a bit on the conservative side, and we should see $80 oil this year, no problem."
--Chris Nelder, January 18, 2007

"Today, we're calling for the price of oil to reach over $100 within the next twelve months."
--Brian Hicks, October 15, 2007

"As I've said before, if there is an open confrontation between the U.S. and Iran, we'll be lucky if oil prices ever drop below $100 per barrel again."
--Keith Kohl, February 26, 2007

"When oil spirals up to and beyond $100 per barrel as a result of declining production, a domino effect begins. Oil is energy. Energy prices skyrocket. Everything else follows."
--Phantom Trader, February 24, 2005

"IEA predictions point to a 53 percent surge in global energy needs over the next 25 years and oil prices running in excess of $100 a barrel by 2030.

"I suspect we'll see it much sooner that!

"The fact is that oil prices are going to skyrocket. I'm talking way over $100 a barrel."
--Keith Kohl, February 26, 2007

"I think we'll see oil over $100 per barrel before 2009."
--Keith Kohl, July 10, 2007

"The price of oil could get as high as $185 a barrel with oil hitting $80 a barrel within the next two years."
--Brian Hicks, March 3, 2005

" . . . within the next three to five years, Saudi oil production is going to collapse by as much as 30% to 40%.

"Clearly, this would push oil well over $100."
--Mike Schaefer, January 16, 2007

"The long-term fundamentals, on the other hand, are still in place for a continuing energy bull market that will eventually push oil prices to well over $100 a barrel."
--Luke Burgess, October 10, 2006

As usual, keep reading Energy and Capital. We'll give it to you straight... the good, the bad, and the ugly.

Profit, don't panic,

Brian Hicks 

Brian Hicks


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