Recovery = oil demand up. Saudi Arabia revolt = oil supply down. Both = oil price up. ((SeaDrill, SDRL, high dividend stocks, Saudi Arabian oil production, deep water drilling demand))

I don’t believe in Keynesian voodoo economics, so I don’t buy into the recovery story touted on nearly all media sources.  I believe in Austrian economics.  Therefore, I think that worldwide oil demand will go down with oil over $100 per barrel.  However, I do think that if unrest in Saudi Arabia starts up, then their 10% of world output might be reduced and that will drop the oil supply faster than the reduced demand.  The king and the serfs will battle for control of the oil fields.  It’s hard to produce oil when bullets are flying in the fields.  Worldwide oil prices will rise in that scenario.

Oil prices above $150 barrel will cause all the economies in the world to plummet back into government defined recessions (the double-dip).  Unemployment will increase, foreclosures will increase, the Federal and State budget deficits will get worse, and social unrest will increase.  Central bankers will print more money out of thin air to fund deficits and to save the banking cartel.  Governments start wars to divert the masses attention away from failed economic policies.  The old saying is true, “War is the health of the State.”  There will be a WWIII in the coming decades.  I don’t know exactly when, but it’s coming due to failed economic policies of all Nation-States.

Think of SeaDrill’s (SDRL) unique selling proposition while you read this article.  A company’s USP sets it apart from its competition.  Companies should market their USP as their competitive advantage over their rivals.  SeaDrill has the most modern, safest, and deepest drilling fleet on the planet.  There are no angry serfs or oppressive tyrants feuding in the deepwater where SeaDrill operates.

I’ve written several articles on SeaDrill ( ).  Their dividend is high, consistent, and well funded.  I believe their earnings power is rising and the extra earnings can be used to reduce their total debt.  The company took on a lot of debt to finance the purchase of that state-of-the-art drill rig fleet.  They have been slightly paying down their debts which is barely improving their balance sheet (a smaller debt/assets ratio).  But I won’t be impressed unless their debt/assets ratio drops below 50% and continues on that trend.


Disclosure: I don’t own SeaDrill yet.

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Be seeing you!

Oil will go up ‘ballistically’ if unrest shifts to Saudi Arabia, says Marc Faber

Source: BI-ME , Author: Posted by BI-ME staff

Posted: Tue March 8, 2011 10:09 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor sees oil prices extending their bull run despite the 15% run-up this year alone.

In an optimistic scenario demand for oil will rise as the global recovery takes hold, and in a pessimistic scenario prices still go up if the Middle East unrest spreads and crude production is curtailed. In both cases, he says, you should be long energy and energy related shares.

Speaking to CNBC today, Faber said: " I think long term you should be exposed to energy in either scenario….if you are extra bearish and believe that War World III is going to start soon, as I believe, or in an optimistic scenario".

Addressing the fundamentals of the oil market, Faber said: "What we had over the last couple of years is essentially a reduction in demand from the developed world, the US, Western Europe and Japan, and continued growth in emerging economies.

"So, if you take a very optimistic view of the world, namely a global economic recovery, demand in the Western World will pick up and demand in the Emerging World will continue to rise strongly, so from a very optimistic point of view you should be long oil," he recommended.

On the flip side, "in a very pessimistic scenario you have to assume that unrest will shift to Saudi Arabia and other countries in the gulf and at that stage the production is curtailed and in that case obviously oil will go up ballistically."

Brent crude futures could hit US$200 a barrel if political unrest spreads into Saudi Arabia, Societe Generale said on Monday.

Under what the bank called Geopolitical Scenario 3, "unrest spreads to Saudi Arabia and threatens Saudi crude exports and any remaining spare capacity. Brent price range of US$150-US$200 a barrel," it said in a research note.

"In this most extreme, worst-case scenario for the oil markets, serious unrest spreads to Saudi Arabia. In this case, it does not really matter if Libya or any other producers are shut down or not. Saudi Arabia is OPEC’s biggest producer and the world’s biggest current holder of spare capacity," the bank added.

Saudi Arabia is the world’s top exporter of crude oil, meeting about 10% of the global oil demand.

Oil prices dropped today, with North Sea Brent crude dipping briefly below US$113 per barrel, after Kuwait’s oil minister said OPEC was considering boosting production for the first time in more than two years.

"You can increase production but to increase the reserves is very difficult and very costly and the fact is simply that the world is burning more oil than it is adding reserves every year," Faber told CNBC.

"So, the level of proven reserves or the existing oil fields, that production will go down, so you have to find new oil fields and develop new ones all the time and that is very costly," he said, adding I would estimate the marginal cost of new oil around US$80 per barrel.

Asked if prices can go up if US demand stays low, Faber said the importance of demand in the developed world is diminishing and the importance of very low per capita consumption countries such as China and India is increasing.

"For the first time in the history of Capitalism you now have essentially demand in emerging economies exceeding demand in the developed world," he said.

What is the best oil investment vehicle?

Faber said he doesn’t favor investing in commodity ETFs given the high rollover costs. Investors in ETFs were bound to lose money in the long run given these costs, he suggested.

"In the commodities space, either you go long commodities yourself through the futures market or you buy companies that produce commodities," Faber advises.

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Published in: on March 9, 2011 at 12:30 pm  Leave a Comment  

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