Monthly archives "May 2011"

Why Oil prices are going up, and how to profit off it

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The big news in the energy world has been the rise of gas prices, and were there going. In the short, I am not too sure, but in the long haul, I think they are heading up. If you want to know why, here are the reasons.

1. The Federal Reserve is still printing money.
When people talk about inflation, they always assume its rising prices. What they fail to understand is that inflation is not rising prices, it’s an expansion of the money supply. Higher prices are just the result of inflation. Since 2008 the money supply has increased 15 fold. This is the first reason the price of Oil is going up.

2. The next reason is the federal and trade deficits. The less a country produces the lower there currency will be valued, because when a country isn’t producing, the demand for their products is low, and as a result, no one will need their currency to buy their products. That’s why trade deficits lead to a lower currency value. And federal deficits lead to bad credit, which results in a lowered valued currency. That’s a simple reason why federal deficits lead to higher prices.

3. Growing world population demand
Everyone in the world uses oil, so the more people, the higher the demand, which equals higher prices.
If you listen to Jim Rogers here, one will see that the world is running out of known reserves. The supply of Oil is dwindling each day, and growing demand + shrinking supply= Higher Oil prices.

One of the biggest suppliers in the world is also running out of Oil. If you look at this wiki leaks article here you would see that Saudi Arabia has grossly overestimated the amount of Oil they have in reserve.

So over the next couple of years, I see Oil prices going higher, and Oil stocks doing really well.

The safe way to play this, is one can buy an Exxon or a Chevron, and it will do well. But if you want dividends I would buy Canadian Energy trusts.

Two small Caps I have my eye on is Mart Resources and Canacol Energy. These stocks both have a good amount of reserves, and are well positioned for growth.
Here’s an article were Chen Lin talks about Mart Resources, here, here is Canacol’s energy reserve report here, this is a stock Keith Schaefer has recommended

One last thing, if you think the Oil companies are ripping you off at the pump your dead wrong, if you look here, you will see that Oil companies like Exxon Mobil only make 2 cents a gallon in profit at the pump, and that governments make 48 cents a gallon, so if you want to blame someone for pirate profiteering, it is the government you should be outraged at, not the oil companies.

Its not speculators reguardless of what Obama says, because my question is where do they get the money to speculate with. I’ll tell you, the Federal Reserve prints it, than loans it to Wall Street at interest rates that are next to nothing, than they use that money to speculate.