How You Can Profit from Exploding Oil Prices

Nothing gets people more fired up than high gasoline prices.

But ask the average man on the street why gas prices are on the rise, and you’ll discover that there is very little understanding about how the world works today.

Truly, the world energy market is a complex system. Many things influence the price that we pay at the pump.

So what’s poised to send prices at the pump higher?

A lot of things.

To start with, I could tell you a long story about the depreciating dollar and how inflation is creating higher prices at the pump.  This, as you know, has been true over the past few decades – and looks to continue into the future.  And although inflation will increase the price of commodities like oil, it isn’t something that will spur a rampant rise in the price.

For that to happen we’d have to look directly at supply and demand for oil. Indeed, there are plenty of things that could trigger a price spike like 2008’s high of $147 a barrel.

For instance political events can trigger a rise in the price per barrel. Nationalization or even the idea of an all out “oil war” could catapult prices to well over $220 a barrel, overnight.  Clearly, with any disruption of output in the Middle East prices could skyrocket.

Situations like this can create vast opportunities.

And lead to huge profits for investors…

Today, I’d like to tell you about a sure-fire reason that prices at the pump are expected to go higher. And later on I’ll show you exactly how you can profit from this same event.

Surprisingly the main trigger is just pure and simple science. It’s known as Peak Oil, and it’s the end of cheap oil as we know it…

The Peak Oil theory was pioneered in the 1950s by a geologist named M. King Hubbert (1903–1989), who worked for Shell. He reviewed mountains of data concerning oil discoveries, extraction and production dating back as far as the 1860s.

Hubbert noted the common trend in oil field development for a new field to come online and oil production to increase as the field was drilled and developed. But then, over time, the inevitable effects of depletion would kick in and cause the overall production of the oil field to steadily decline.

The discovery side of the Peak Oil theory holds that mankind has identified and located, if not actually discovered, most of the conventional crude oil that there is to find in the crust of the Earth. The production side of the Peak Oil theory holds that mankind has produced and, of course, consumed something near half of it. In terms of really big Peak Oil numbers, out of a worldwide resource base of conventional oil that is estimated by some knowledgeable commentators at about 2.2 trillion barrels, about 90% has been discovered and about 1 trillion barrels have been extracted and consumed over the past 150 years or so.

So the fact is Peak Oil is an event of profound significance. One commentator on the subject is Ali Samsam Bakhtiari, a retired director of the National Iranian Oil Co. He has been studying the history of petroleum and the oil industry for decades. He has a collection of databases from every major producing region of the world. Dr. Bakhtiari is among the most respected oil analysts anywhere. Bakhtiari has reviewed the available evidence on world oil production and believes that world output peaked absolutely in the summer of 2006.

If Dr. Bakhtiari is correct, then the world is many years passed the “peak” point of Peak Oil. The future of conventional oil extraction is all downhill from here. Which does not mean that we cannot make some money on the phenomenon. And in the post-Peak Oil future, you will definitely want to have some money…

Okay. So we’re past the point of no return with the supply of oil.

Although some oil finds, even big ones, will surface over the coming years they won’t make up for failing production and increased oil demand.

This paints a pretty grim picture when it comes to the price of oil.  Prices are set to rise for all the reasons listed above.

But even past peak oil, inflation and increased demand certain market shock events could drive the price of oil up over $300 per barrel.

The oil market is tight – every year demand stretches the limits of our oil supply and all it would take is one blip on the supply side to throw this delicate equilibrium off.

With the events we’re seeing in the Middle East I don’t think we’re far from a super spike in the price of oil.

And if that’s the case, you’ll want to take a look at the oil that offer you a chance to profit from a general rise in the price per barrel. Plus, plays that are out of the “danger zone” and won’t be affected by Middle East turmoil. This way you’ll have the opportunity to profit from oils next leap higher.

[The Sleuth’s Note: Doing a quick search with Google Finance’s Stock Screener, we were able to find a few small-cap domestic oil companies to get you started. They are: ATP Oil & Gas Corp. (NASDAQ: ATPG), Kodiak Oil & Gas Corp. (AMEX: KOG), and Vantage Drilling Company (AMEX: VTG). As always, this is just a place to start. Before investing in anything, we recommend you do your own research.]

Sincerely,

Byron King,
for Penny Sleuth

How You Can Profit from Exploding Oil Prices was originally featured in the Penny Sleuth. Check out Wall Street’s 5 Most Profitable Penny Stock Patterns Report.

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