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The Oil Rocket And Penny Stocks
July 25th, 2006
There are a lot of penny stocks affected by oil prices. So, let's take a look at oil prices.
I'm going to make some bold statements that you haven't heard anywhere else.
Have you taken a look at a trading chart for oil lately? It looks a lot like the Nasdaq did just before the dot-com bubble burst in 2000.
Oil traded at $20 / brl in 2002.
$30 in 2003.
$40 in 2004.
$50 in 2005.
$60 in 2006, and now up to $70.
Ignoring expected volatility, that is a straight-line climb. In other words, an unsustainable advance. It is absolutely impossible for the price of oil to continue to climb at the current rate.
When I said the exact same thing about the Nasdaq a few months before it collapsed, very few people in the media (no one) agreed.
I am saying that oil prices are due for a major pull-back, and again, no one agrees.
In people's commotion, fueled by global uncertainty, everyone has seemed to forget that oil is the second most common liquid on the earth, second only to water.
What about the crisis in the middle east? (First of all, the media keeps calling it a crisis, and that pisses me off. It is a war.) Well, the 'crisis' is already factored into oil prices.
What about uncertainty and sabotage in Iraq? Already factored in.
What about hurricanes, national upheaval, terrorism disrupting supply pipelines...? Factored in, factored in, factored in.
In my calculations, there is a $20 price premium on oil right now, due to military actions, political uncertainty, and supply disruption.
Why else would the price of oil barely increase at all, upon the IRD (Israeli Defense Forces) entering southern Lebanon? I mean, listen to that out loud. The IRD entered southern Lebanon, which should drive oil prices up in concert with the uncertainty and instability, but it barely had an effect!
Prices did not increase because they are already way over-extended. They can't go much higher.
As for supply disruptions, the world's largest oil producer, and indeed the vast majority of oil producing nations, have no supply concerns whatsoever. (Russia is the world's biggest oil producer currently.)
What does a big drop in oil prices have to do with penny stocks? I'll let you figure that out. Or you can go to the professionals in penny stocks at PeterLeeds.com and subscribe to Penny Stock Insider to take advantage of some of the latest trends, insights, and picks.
Besides all the other reasons I have mentioned in making a case for a drop in oil prices, I have yet to mention the biggest reason.
Think of the laws of nature. One thing that guarantees a decrease in the population of an animal group is a lack of food. If there are 5 rabbits and 70 foxes, you are going to see a major drop off in the number of foxes. They will starve.
The current oil prices, even those prices two years ago, have been lucrative enough to put even the most marginal oil wells into full production. Producers are pumping water into the ground to eek out the last few drops. Most wells used to leave as much as 70% of the oil in the ground, because it was more troublesome after the first 30% and not worth the cost to get the rest. Guess what? They are now going back in for it.
Technological advancements have also made it easier and more efficient to find and extract crude. I mean, look at the Canadian Oil Sands. The oil is literally sitting on the surface of the ground. You can reach down and pick it up in your hand. So what if you need to move 10 tons of dirt to get 1 ton of oil? At $50 a barrel it suddenly became a profitable venture. At $70, well hey - look at the dozen major oil production companies that are starting up operations in the oil sands.
Canada has more oil than any other nation in the world, save Saudi Arabia. Yet the media makes you believe there is a global supply crisis? Just drive north, you can pick it up with your hands.