Brace Yourself (and Your Portfolio) for an Oil Price Shock by 2012 Or Sooner (Part 1 of 2)

Submitted by EnergyTechStocks.com

How ironic that, even as President Obama fights an uphill battle to convince Congress to accelerate alternative energy development despite widening budget deficits, it looks like it’s already too late to avoid a new oil price shock.

In his press conference last week, Obama said the country can’t afford to wait to tackle its oil addiction “until the next time that gas gets to $4 a gallon.” But noted consulting firm McKinsey & Co., Saudi oil minister Ali Al-Naimi, and “dean” of oil analysts Charles Maxwell of Weeden & Co. all say that an oil price shock that hits between 2010 and 2013 now appears all-but-inevitable.

 

Unlike short-sighted Congress – and apparently the rest of the news media, which hasn’t said “boo” about a potential new oil price shock – Obama “gets” that, as McKinsey put it last week, “As soon as we get the economy up and running again, we’re going to find ourselves in a world when (oil) prices are going to fly up.”

Or as Al-Naimi reportedly said two weeks ago, the world faces a “catastrophic” energy supply crunch. Or as Maxwell pointedly wrote at the end of January, “Capex numbers so far supplied by the oil companies themselves suggests cuts in E&P funds currently range between 10% and 25% for the majority of companies. So, the short-term need to conserve cash, build up balance sheets and avoid long-term capacity that may or may not be required soon appears ready to trump possible needs for the intermediate future.

“In effect,” wrote Maxwell, “we appear ready to (knowingly) fall off the pace of capex required to supply sufficient oil to meet projected demand five to six years down the road. We are thus, in my view, setting the stage for a sharp upswing in oil prices by 2012, and beyond.”

This isn’t the first time Maxwell has warned about an “intermediate” term oil nightmare. (For more, please see “Dean” of Energy Analysts Charles Maxwell’s Disturbing Visions of an Oil-Scarce Future) Investors should note that Maxwell was right on the money when he wrote in January that OPEC supply cuts would be enough to push prices up “into the $50-$60 range by summer.” They should further note that by 2011, before any sharp upswing in price, Maxwell expects oil prices already to be back in the $70 range.

So how high does Maxwell see prices going? By the “mid-teen years,” as he put it, the price of a barrel of oil could hit $200 to $300. “Such a high price would become a heavy penalty on recovering economies around the world,” he emphasized in his January research report.

Echoing Maxwell, McKinsey predicts that the price of oil will, “in relatively short periods,” move up “from a level at which production is marginal ($30-$40 a barrel), to a level at which new investment is marginal ($60-$80 a barrel), to scarcity pricing (above $100 a barrel).”

What’s an investor to do? We’ll look at that tomorrow, March 31, in Part 2 of this news analysis.

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