Middle Class Energy and Opportunity

Last week, it was reported that 75% of China's villages no longer have any available young workers to send to the cities. Oil traded at its all time high of around $80. And the US dollar continued its historic decline against other currencies.

The global middle class will soon count 50% of the global population, and the rest will be directly supported by them by remittances home. Everywhere we will be seeing a steady unrelenting improvement in living standards that is continuing to accelerate.

For those who have worked through the logic of sea ice melting, you will recognize the same very nonlinear phenomena. I have had the advantage of knowing that the world we are living in could happen thirty years ago. The S curve is well known and a powerful predictive tool. But I could not anticipate the enthusiastic conversion of the Chinese and the Indians to economic and governmental sanity.

Today, the footdraggers remaining around the world are simply temporary speed bumps. Does anyone not believe that the day Cuba is able to normalize its place in the world, that it will quickly emerge as the most dynamic country in the Caribbean? And let us not forget that Brazil has fully embraced the modern economic system and is now showing dynamic growth.

Right now the US is feeling pain because of a wave of unregulated lending in the mortgage market, whose principal victim is the institutions who bought the bundled crap. The little guy got the equivalent of a walk away mortgage. Yes, I know some who surely should have known better wrote deals in which they put up hard won equity for short term gain and a kick in the head later. They actually have a triable action to work with to attempt to save their ass.

That was not who really got to play. The fact is that the salesmen mortgaged the fence posts in order to get commissions as they always will if you let them. It remains that the real bag holders are large institutions who will now have to absorb massive losses unwound over the next several years.

After all, if you walk away from a $500,000 mortgage, with no money down, and get a good job, chances are you will be able to buy the same property for $200,000 in a couple of years with a $50,000 down stroke. You are on the winning side of a $500,000 swing if you include unpaid interest. Guess who paid?

That means that their ability to lend is hugely curtailed and their over supply of cash is gone. The next few years will be the best time to buy a house since the second war because of this.

While the US economy is once again sorting itself out, the problem with oil is not going away. The Global growth machine is eying a global middle class that wants to share in the luxury of owning a car. The real projected demand for oil based fuels is insatiable and will need to be redistributed through the market place. I have already warned of the advent of $200 plus fill-ups. You and I have to be able to say ouch!

And that level of pain will herald the rapid advent of biodiesel in particular, hopefully by way of an algae culture.

This means that young middle America gets to buy their home at a fair economic price and to keep fit by riding their bicycle to work. This is not a bad deal for the children of the baby boomers.

Keith Kohl on Tightening Oil Supplies.

I am quoting Keith Kohl's newsletter here in full. Much as we are now looking at a clean out of the credit markets that is very dangerous, the real global problem is that a squeeze is developing in the supply side of the oil industry and there is little we can do to evade it. None of the analysts have the guts to tell us the truth. A fill up has to hit $500 to force the automobile driver off the road. It is in the process of happening in a sort of slow motion. I do not like to promote fear and panic, but we have time to share this knowledge with others so that it is not a surprise and folks can prepare for it.

Remember that in the 1970's, oil went up ten to fifteen fold. A comparable today would be for it to go to ten times $20.00 or $200.00 to $300.00 a barrel.

Don't you wish a national leader would just come out ant tell people to prepare for a world of $500 fill ups instead of this "I am all right Jack" attitude.

This is from the Energy and Capital newsletter usually advertised on my blog - thank you Adsense:)!

Tuesday, September 18th, 2007

From Desert Sands to Oil Sands
By Keith Kohl

Baltimore, MD--Oil prices today reached as high as $81.90 before settling back down, but the time to mourn the death of cheap oil has already passed. The real question is, "Where do we go from here?"

If you haven't noticed yet, oil is really on the move. But what's the problem? Shouldn't we be running around like crazy?

Don't hold your breath just yet.

The Oil Crunch

For starters, oil is still very cheap.

I know we're at record prices now, but I've said this before: "If you think $80 a barrel is expensive, wait until it breaks $100 or more."

The truth is that we can't predict how expensive oil will get once the peak global production sets in. But we can say one thing for certain: It's going higher.

I couldn't stop laughing recently after reading one oil exec predicting that prices would hit $150 a barrel within 20 years. Well, at least he narrowed it down to two decades. It made me want to send him my own ridiculous prediction that it would rain at least one day over the next three years.

Seriously, though, what's going on here?

Every meteorologist I've spoken to over the last year has been adamant that this hurricane season would be catastrophic. Even FEMA released a statement saying the 2007 hurricane season could be "nearly as destructive as 2005."

Okay, we should have known this season would be weak if FEMA said that, but then again, we still have more than two months left in the 2007 season.

At least we haven't bombed Iran yet. I can only imagine the price jump from that. Oil would go past $150 a barrel in a heartbeat.

So shouldn't oil prices should be decreasing because of the shortage of monster hurricanes and bombs over the last few weeks?

Here's what's happening . . .

The oil market is still tight. Over the last three months, US crude oil supplies dropped 10 out of 11 weeks.

Don't think it's all rainbows and sunshine from here on out, though.

This week, the EIA is expected to announce that stocks of crude will fall by about 1.75 million barrels. Last week, they dropped by 2.25 million barrels.

Now take into account that our demand (not just in the US, but the world as well) is going to keep growing. Global demand is expected to reach well over 88 million barrels of oil per day. My Energy and Capital readers know exactly how I feel about conventional oil.

But where does this leave us? Sitting on the sidelines, watching the oil prices go haywire, is hardly my idea of fun.

Our Oil-Stained Future

Let me show you where our future oil demand will be satisfied.

Numbers don't lie, unless, of course, we're referring to the dubious oil reserves that OPEC claims they have. Does anyone else remember this chart from my article last May?

When these OPEC members dramatically increase (and in some cases double) their reserves in just seven years, I can't help being skeptical.

But I don't want to focus on reserves. The truth is that we'll never know how much the OPEC oil fields are struggling until they release the data.

However, I know EXACTLY where the US will get its oil.

We know that US oil production is spiraling down the drain. That's no secret. As the world's largest oil consumer, we'll have to look elsewhere. And don't let people fool you, our savior will NOT be Middle Eastern oil.

According to the EIA, our petroleum imports have been rising steadily. From 2001 to 2006, they rose from 11.8 million barrels per day to 13.6 million barrels a day. That means our imports grew roughly 14.6% in that time.

If I asked you where we got most of our oil, I'd bet a number of you would immediately think of the Middle East. I mean, even Greenspan recently said our presence in Iraq is motivated by oil.

But you might be surprised to learn that our addiction to Middle Eastern oil is decreasing.

Consider the following from the EIA . . .

Between 2001 and 2006, our imports from OPEC countries dropped approximately 6%. Since the 1960s, OPEC's total share in our petroleum imports has dropped by about 30%.

In fact, three of the top five exporters increased their petroleum exports to us between 2001 and 2006--Mexico, Nigeria and Canada.

I won't get into the geopolitical mess that is Nigeria. And if we take into account the serious troubles at Cantarell, there seems to be no chance for Mexico to keep up production.

Canada, however, is a different story. During the last five years, petroleum imports from Canada have increased 25%. With the kind of growth the oil sands are experiencing (especially in light of $81.51 for a barrel of oil), there's no doubt in my mind where we'll meet our future demand.

More importantly, oil companies are realizing this too. There'll be trillions of investment dollars pouring into these unconventional sources. The problem for us, however, is finding the companies that are going to benefit from this surge of investment. On Thursday, I'm going to show you some of the things to look for, and (more importantly) some of the pitfalls to be wary of.

Until next time,

Keith Kohl