Dear Wealth Daily Reader,
Let’s face it, predicting that oil prices will keep rising this year is like shooting fish in a barrel.
This time around it’s Nigeria, the world’s eighth largest oil exporter. And Nigeria is no stranger to political instability. Don’t forget last year, when militants bombed one of Shell’s major exporting stations, causing production to fall by 500,000 barrels per day.
Oil revenue is vital to Nigeria. The country produces over 2.4 million barrels per day (MMbbls/day). Oil exports make up 20% of Nigeria’s GDP and roughly 65% of its budgetary revenues.
Also, over half of their exports flow into the U.S. In fact, we imported more than thirty-five million barrels of Nigerian oil in January. This comes out to about 1.2 million barrels every day–and that’s nearly 12% of our daily imports!
Upset over Nigeria’s presidential election last week, militants crying fraud attacked government buildings. These militants have even gone so far as to seize truckloads of ballots, claiming the election was rigged.
The violence has sparked fears that crude oil shipments could be interrupted, which caused oil prices to jump $1.55 a barrel.
In January, crude oil prices hit a low of $50 per barrel, yet have rebounded since and have been at over $60 a barrel since February.
Here’s a look at oil prices since last November:
Trading today pushed oil past $65 a barrel. Considering the extreme volatility of oil lately, I expect we’ll be seeing it break $70 a barrel shortly.
Pain at the Pump
Higher oil prices mean one thing for certain–higher gasoline prices. And can expect to see gas prices over $4 a gallon this summer. Why’s that?
Inventories are lower than expected from several disruptions. In February, the McKee refinery (capable of processing 170,000 barrels of oil a day) was shut down because of a fire. Furthermore, some companies failed to complete maintenance work in 2006. This on top of the fact that gasoline demand has increased more than anticipated already.
But if refineries expect to increase their output, it’s going to require more crude oil. Don’t expect OPEC to boost production, either. The oil cartel recently announced that it is comfortable with the oil market right now–and its next regular meeting isn’t scheduled until September.
So what does this mean for us? (Aside from gouging our wallets at the pump, of course.)
For starters, if oil prices keep rising we’re going to see a push for more development of unconventional sources, a perfect example being the oil sands in Alberta. We have already seen an increased interest in Canadian oil sands, which already supply over a million barrels a day to the U.S.
And the best part is, there’s a ton of relatively unknown companies that will explode when Canadian oil sands take off.
Until next time,
Keith Kohl
