So we’ve all heard the news, the barrel has hit an all time record of $73, but why? Some people suggest insufficient resources, lack of product, demand, addiction, but what is really driving the price? What is really causing the horrifying transaction at the pump? In this article I want to cover some ground which will educate you somewhat on what I think can make you money, and save you at the pump.
The answers to these questions have multiple ones, however, one of them dominates – this is Iran. Iran, as silent as it seemed to be only 6 months ago, has had a tremendous impact on the United States not only currently, but in the past as well. In my opinion, Iran will continue to pursue their nuclear program and do “whatever it takes” to complete their mission in bringing a “safe nuclear program” to their homeland. Now if you asked me, I don’t believe a single word their president says, he is very fanatical and wishes death to the wrong people. Now you are asking; “why in the world would Iran drive the price up? They are only providing 10% of the oil to the world, which makes it what 2% to United States?” Let us first understand why oil is so important.
1) Oil is not renewable. Although there are other sorts of mechanical instruments (hybrid cars) that will run on electricity, the main source and most widely used is still oil.
2) United States is not an “oil-rich” country. Yes of course there is oil in Alaska, but we're years from seeing it. I firmly believe the United States is trying to take the upper hand and finish the oil in the Mid-East, so in years from now, they can rely on our oil, by then the price would be entirely ridiculous.
3) Oil will not die. No matter how many new items come out from the dark, from hybrids, & electric to hydrogen and solar; oil will still be in the play for years. The price will always continue to increase since basic supply and demand rules will apply.
So we’ve clarified that, we know that no matter what any president says or what any manufacture decides to do, we will still depend on oil.
Today, President Bush has commented and firmly supported the production of hydrogen cars, and has ordered to cut back on the purchase of oil for the United States reserves. The price of course will get investors to dump for a profit with fear that the demand will come down which will ultimately drive the price cheaper. However, this is a temporary “fix” that you must act on and get in while it’s cheap! If the barrel ever hits the light of $68-$70, which it may in the next week depending on what happens with Iran, I could use a little bit of stock (I’ll tip you later on in this article). But now its time to show you exactly what effect Iran has on the oil production in this world and why I think it’s going to $100+ a barrel.
(Courtesy of Wikipedia.com)
Each of these numbers has a meaning to them, to see a full list please visit http://tinyurl.com/an4fj. I’m going to list some of the points that have driven the price up starting in the 1973 Oil Crisis.
October 17, 1973, (OPEC Organization of Arab Petroleum Exporting Countries) decided to no longer ship any petroleum to the countries that supported Israel in the ongoing Yom Kippur war. This spiked the prices of the barrel to what was then an “unbelievable” price, but the American’s still paid for what was necessary.
Looking at the chart, here’s what has got the price up from Iran’s pressure.
$4 Oil embargo begins (October 19-20, 1973)
$6 Oil embargo ends (March 18, 1974) (notice how there was little price change, and the barrel stayed rather high)
Here is what the KEY point is:
- 11 – Iranian oil production hits a 27-year low
- 13 – Iranian Revolution; Shah deposed
- 17 – Iran takes hostages; President Carter halts imports from Iran; Iran cancels US contracts; Non-OPEC output hits 17.0 million b/d
- 20 – Kuwait, Iran, and Libya production cuts drop OPEC oil production to 27 million b/d
- 23 – First major fighting in Iran-Iraq War
From points 11 to 23, there was a 160% increase in oil only due to the Iranians’ actions.
Now lets say this happens again, Iran decides to cut OPEC output because they are supporting the US, which will be the case, history repeats itself doesn’t it? If that’s the case, 160% increase would take the barrel to roughly $182! There is no doubt in my mind that Iran will try and pull something like that to make our lives more miserable in order to complete their nuclear program.
This is why I believe we are at threat. So what am I going to do about it? How am I going to protect myself? I’m going to take advantage of this ‘low’ price and use it to make money. I’m going to be very bullish on OXY (Occidental Petroleum), XOM (ExxonMobil), and of course USO (United State Oil Services). No matter what happens, these particular stocks/ETFs will continue to grow as they are the strongest energy companies I’ve traded. I refuse to pay $4-$5 / Gal of gas without any reimbursement of some sort. Instead I will sit on my chair and watch oil go up as Iran will continue to threaten the world with their inhuman acts. Check up on both OXY and XOM, I personally have bought OXY at $89 and will continue to hold once this entire crisis is over and I sense a drop. What you can do, is do your research on both and take this article into consideration, as time ticks you can protect yourself from the high prices gas prices, and add an extra buck to your wallet!
Take these rules with you!
Be sure to shop around for gas, don’t be fooled by the octane grades as it has no true effect on your car; fill the cheapest grade!
Don’t pay attention to rumors telling you that Arco or some unknown company mixes their gas with garbage additives, this is nonsense! These companies are cheaper since they do not have to pay for expensive franchise fees; I personally fill up at Velaro.
Make sure your tire pressure is correct; otherwise you will be losing 4-5 miles per a gallon believe it or not!
Use a “cashback” card; I actually save 0.15 per gal when I fill with my Chase card.
Get rid of all the heavy, unnecessary items that may weigh your car, trust me you notice a difference.
Carpool when you can J
Hopefully this article will bring some light.
Cheers!
Josh
