Now that oil has finally hit $100 a barrel, investors are asking themselves
how long can these prices last.
After all, the economies of China and India continue to push up demand. Hugo Chavez continues to threaten to cut off U.S. oil. And Rebels in Nigeria continue to undermine supplies from that besieged nation.
Most investors don’t realize this, but this is the exact same situation we faced last summer when oil prices fell to $60 a barrel.
Could we see the same kind of price collapse we saw in the summer of 2007?
NO WAY!
Truth is, there are three powerful wealth-building trends converging on oil stocks that are so huge, even a pull out by hedge funds and traders couldn’t collapse oil prices.
The reason is quite simple: The falling dollar combined with tight oil
supplies and limited refining capabilities will continue to keep oil prices high and even make today’s high crude prices look like chump change.
This is why on March 12th oil hit an all-time record of $110 a barrel– driven by a number of factors that will make the oil sector one of the top performing sectors of 2008:
- The Federal Reserve’s continuing rate cuts, which caused the dollar to fall near its lowest point in 15 years.
- Rising oil prices driven by OPEC cutbacks.
- Declining inventories that used to act as a cushion to rising prices.
- The fear of tropical storms again hitting U.S. drilling and refining installations in the Gulf of Mexico, highlighting the severe supply and refining problems we have here in the U.S.
Most American’s don’t know this but at one point last September amidst the threat of Hurricane, not only was 62% of U.S. crude oil production shut down, but 30% of U.S. natural gas production was off line as well.
In fact, the hurricane shut down was so severe that it slashed Gulf production levels to nearly the same we saw in the aftermath of Hurricanes Rita and Katrina in 2005.
And while oil prices always back off at the end of hurricane season, one thing can be clear: We have finally entered the era of $100 a barrel oil and the fortunes of select U.S. oil companies are about to shoot through the roof.
The reason is simple: Oil and other petroleum commodities are priced in dollars, U.S. oil stocks look like bargains to overseas investors. It’s all because foreign currencies get stronger as the dollar falls. The end result will continue to put powerful upward pressure under the price of key oil stocks as the dollar
continues to slide, supplies shrink, oil prices continue to rise and overseas
investors pile into U.S. oil stocks.
And if the instantaneous jump in oil
that accompanied the rate cut is any
indication of what lies ahead in the oil
patch, this is not only a situation that
you simply can’t ignore…but one where fortunes are made.
Where the Big Money Will Be Made
Surprisingly, the biggest profits won’t come from the big oil companies. That’s because large integrated oil companies have much larger operations, and along with them come higher costs and lower margins.
As a result, increasing oil prices don’t always translate to increasing profits and shareholder returns.
Truth is, in times when oil prices are skyrocketing, contract oil drillers and oil services companies lead the pack. How can this be? Because contract drillers are like the hired guns of the oil industry.
They specialize in one and only one thing: drilling for oil. As a result, they don’t have to find the fields or pump, sell or refine the oil afterward.
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They simply drill for oil and are paid up to—hold on to your hat—as much as $200,000 a day. These day-rates can only go higher as the demand for drilling rigs continues to outstrip supply.
In fact, from Australia to Europe, from North America to South America, the rig industry is already at 100% capacity. In the remaining regions around the world, capacity is at 93%.
As reported recently in Business Week, “Demand for drilling rigs has led to record-setting day-rates and they’re still on the rise.”
They will continue to rise for the foreseeable future as it takes years and millions of dollars to build new rigs.
That’s why I suggest you back up the truck and buy as many shares as you can in a company that is already making money hand over fist as oil prices continue to rise and the demand for oil drillers explodes.
If you read Blue Chip Growth regularly, you’ll already be familiar with my top drilling stock, Transocean (RIG). After all, I’ve been writing about the boom in drilling stocks for over two years now. Those who have invested along with me have banked 38% profits.
As you’re about to discover, Transocean profits pale in comparison to what lies ahead, for three simple reasons:
- Transocean is by far the world’s largest offshore oil drilling contractor, with a fleet of 82 mobile offshore drilling platforms.
- As a result, as oil prices and day-rates rise, the company will bank the biggest profits, not only because it has the largest fleet but because it has the most modern fleet of drilling ships, able to drill for oil in the harshest and deepest of conditions.
- What’s more, the company increased its rigs by six and is already locked up under new contracts bringing the company to 91% of capacity.
Second, the company is near to sealing the deal on a mammoth merger with another drilling giant, Global Santa Fe (GSF), which will solidify the company as the global leader of offshore drilling.
The combined company will not only have the largest fleet in the world, with a mammoth 146-unit fleet, but also the most technologically advanced fleet in the world.
In addition, the company, with a combined revenue backlog of $33 billion, has the financial flexibility to not only invest for future growth but also to devote two years of free cash flow to reducing debt.
Last, if the past quarter’s earnings are any indication of what lies ahead, this is one company that could by itself double your money in the next 12 months.
In fact, the company’s first-quarter revenue jumped more than 75%.
What’s more, the company’s earnings were just as impressive up 70% to $3 billion.
When you consider that oil prices have jumped from $80 in August to $110 in March, you can see the profits Transocean will make when first-quarter earnings are released in a world of over $100-per-barrel oil.
It’s easy to see how rising oil prices could go down in history as one of the most profitable trends of 2008. As the editor of Blue Chip Growth Letter, it’s my job to connect the dots to the stocks that are most likely to profit. As you’ve seen so far, by simply embracing this opportunity now, you could easily double, triple, or even quadruple your wealth in the years ahead!
For over 20 years, Louis Navellier has helped investors grow rich from identifying the world-changing trends, handpicking the stocks, and holding on for the ride! As a result, Blue Chip Growth has rolled up 5,387% in cumulative returns since 1985! See how Blue Chip Growth could make you 50% richer, or more, in the next six months! Accept your risk-free trial subscription by clicking here now!
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