Investor's Revenge: Get Rich on $150 Oil

April 30, 2008



Yes, Russia's production is up from 6 million barrels of oil per day in 1996 to 10 million per day now, but that growth has flattened, and its domestic demand is rising. Plus, with its anti-West government, major oil companies don't want to work with Russia.

That leaves OPEC and Canada to pick up the slack. We're dependent on OPEC countries -- who account for about 75% of world oil reserves and 40% of total output -- to throw an additional 5 million barrels per day into the market to bring prices down to $80 per barrel. How likely does that scenario sound?

A stronger U.S. dollar will help bring oil prices back to earth, but the question remains: At what price do we see real demand destruction like we saw in the early '80s? At that time, we had a 13% to 14% drop in demand, which was what really brought oil prices down.

I'd say the answer is somewhere around $145 per barrel.

Spending on oil as a share of global output peaked in 1980, at 5.9%. Today, it's about 3.5%. Until we hit $150 oil, we won't feel the same pain in the pocket that drove people to shed their muscle cars for Pintos.

We could break the back of oil consumption with a federal gasoline tax that would go toward building roads and bridges, and funding alternative energy infrastructure, but we won't -- as a country, we don't have the will or the votes to make that happen.

Slick Profits

So, how do we profit from this?

The smart money will buy unconventional oil and gas producers on dips, and then watch those investments explode higher as oil and gas prices see higher highs and higher lows.

Technological advances coupled with high oil prices mean boom times for the best-positioned alternative energy companies and unconventional oil and gas producers. Which ones should you buy on pullbacks? Join ChangeWave Investing to find out.

We have a way to go before we get to $150 oil, which is when we may want to sell some of our energy companies, but now is the time to be a buyer.



Toby

P.S. High energy prices are here to stay. Despite what some may believe, oil and natural gas prices are not going to come down significantly from these levels. But smart investors will use temporary pullbacks to get into energy plays that will benefit from this trend. Join ChangeWave Investing to get a list of the best alternative and unconventional energy stocks.

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Tobin Smith is the founder of ChangeWave Research, the editor of ChangeWave Investing and ChangeWave MicroCap Investor and a contributing market analyst for Fox News Channel. His market commentary can be found in the ChangeWave WaveWire and he provides more specific recommendations and advice through his ChangeWave Investing service. Click here to learn more about ChangeWave Investing.