Crude oil remains the most important commodity on the planet. Without it, economic and political life as we know it would cease to function.
Four BIG trends will determine where prices go next:
- China's transition to No. 1 oil importer.
- The death of Hugo Chavez.
- Iran's distribution of Chinese-made weapons.
- New projections for the U.S. gas boom.
1) China's transition to No. 1 oil importer
Says Javier Blas, commodities editor of the Financial Times:
China has overtaken the U.S. as the world's largest net importer of oil, in a generational shift that will shake up the geopolitics of natural resources. [...]
The U.S. has been the world's largest net importer of oil since the mid-1970s, shaping Washington's foreign policy towards energy-rich countries such as Saudi Arabia, Iraq and Venezuela.
America is headed in the direction of energy self-sufficiency... making slow but compounding strides to wean itself off fuel imports. China is headed in the opposite direction. It's becoming more dependent on foreign oil sources to keep its economy moving.
This sea change favors America. All the talk of China having the U.S. over a fiscal barrel pales in prospect to the dragon's growing energy vulnerability...
2) The death of "El Presidente"
With 18% of the world's proven oil reserves, Venezuela is the fourth-largest oil supplier to America. And yet under the reign of "El Presidente" oil production dropped by a fifth. This was due to the state-owned oil giant, PDVSA, falling into gross neglect and disrepair, as Chavez turned it into an arm of the welfare state.
Chavez's passing means new opportunity for the Western oil majors to re-enter Venezuela, renegotiate contracts that Chavez had torn up, and provide manpower and expertise to help get Venezuelan oil flowing faster again. This is a longer-term geopolitical positive, but with little impact on short- to medium-term instability.
- The threat from Iran
Iran's attainment of Chinese-made weapons is raising hackles. Via The New York Times:
An Iranian dhow seized off the Yemeni coast was carrying sophisticated Chinese antiaircraft missiles, a development that could signal an escalation of Iran's support to its Middle Eastern proxies, alarming other countries in the region and renewing a diplomatic challenge to the United States.
The Middle East has long been a giant fireball in waiting. It is becoming clearer by the day that Iran wants to strike the match...
- America 's energy revolution
As The Wall Street Journal reports:
U.S. natural-gas production will accelerate over the next three decades, new research indicates, providing the strongest evidence yet that the energy boom remaking America will last for a generation.
The most exhaustive study to date of a key natural-gas field in Texas, combined with related research under way elsewhere, shows that U.S. shale-rock formations will provide a growing source of moderately priced natural gas through 2040, and decline only slowly after that...
The impact of the shale gas boom will be profound -- especially as natural gas makes inroads as a transportation fuel. Major corporations such as FedEx and Caterpillar are already investing heavily in a switch to natural gas powered vehicles. Electric cars and hybrids are also strong candidates for natural gas consumption, as electric power plants are increasingly fueled by natural gas.
In fact, there are powerful incentives on every level -- military, political, economic -- for the U.S. to aggressively embrace shale gas.
I'll be recommending ways to play these big trends in future issues of my global trends newsletter Strategic Wealth Report. Each one holds the potential for once-in-a-lifetime profits for investors who position themselves wisely.
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