Oil Panic

Oil Panic: An Oil Panic in Plain Sight
by Sean Brodrick
The Rude Awakening
Wall Street, New York
Wednesday, August 31, 2005

Sean Brodrick explains the many reasons an Oil Panic is headed our way.

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The Rude Awakening PRESENTS: Hurricane Katrina smashes
"Energy Alley," a concentrated area of oil production in
Gulf of Mexico that supplies about 35% of America's
domestic oil.

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AN OIL PANIC IN PLAIN SIGHT
By Sean Brodrick

- Hurricane Katrina smashes "Energy Alley," a concentrated
area of oil production in Gulf of Mexico that supplies
about 35% of America's domestic oil.

- White House says oil will get cheaper, but makes hush-
hush plans to increase the Strategic Petroleum Reserve by
42% to ONE BILLION barrels of crude. Why are they so eager
to add to the SPR when oil prices are high?

- Saudis reveal they won't be able to meet oil demand –
first time EVER they've admitted the awful truth

Hurricane Katrina delivered a devastating blow to America
even before it slammed into Louisiana. The Massive storm
smashed through "Energy Alley," a concentrated area of oil
rigs off the coast that supply about 35% of America's
domestic oil production and 20% of its natural gas. It
damaged much of our nation's oil production.

At the same time, workers rushed to shut down the offshore
Louisiana Offshore Oil Port, which processes loads from
tankers too large for mainland ports. The LOOP is the
nation's largest oil import terminal, handling 11% of U.S.
imports. And refiners shut down more than a million barrels
a day of production as they braced for the impact from the
monster storm. Those refineries will probably be out for at
least two weeks, setting the stage for a potential gasoline
shortage.

Panicked oil traders are pushing oil prices over $70 per
barrel. And now for the really scary part. A devastating
hurricane strike at America's oil and gas operations in the
Gulf of Mexico is just one of the major forces that could
send oil to $80 ... $100 ... $150 a barrel. Other forces
that could send oil prices surging are potentially much
more serious...and permanent!

The Saudis are the "central bank of oil," right?  So how
come the central bank is scrounging for loose change under
the couch cushions?

Earlier this month came news that Saudi Arabia hired five
Rowan jackup oil rigs for drilling offshore oil wells on a
three year contract. Those rigs are currently under
contract in the Gulf of Mexico, so that means Saudi Arabia
outbid somebody to get those rigs – and rig rates have
already run up to obscenely high levels – 30% to 50% more
than a year ago.

Drilling for oil underwater is very expensive. You'd expect
the Saudis to be drilling out their cheapest oil first. 
Don't they have a desert full of this stuff? So why are
they suddenly digging deep for underwater oil, and willing
to pay a premium to do it?

Unless... maybe the Saudis don't have as much oil as they
say they do.

We already know that the Saudis have confessed that OPEC
won't be able to meet western oil demand in 10 to 15 years. 
I'm starting to think they might come up short a lot sooner
than that.

Oil Panic: Some Ugly Facts

Are the Saudis lying? Well, at least it seems like they're
not telling the whole truth. What's more, I believe there's
a whole lot our own government isn't telling us. I'll get
to that in a moment. First, some ugly facts...

- The world uses a BILLION barrels of oil every 12
days.  Do we find a billion barrels of oil every 12 days? 
NO!  In fact, if everything goes perfectly, we'll find just
30 million barrels of oil in the same time period.  If
things go badly, we'll find less.  Much less.

· The global depletion rate runs at least 5% a year,
perhaps much higher , as once-reliable sources of oil are
in serious decline. Oil production in Britain fell the
steepest of any country last year, with production in the
once-prolific North Sea falling by 10% (230,000 barrels per
day) last year ... Production in Alaska's Prudhoe Bay has
fallen 75% from its peak in 1987 ... Iraq's oil production
is still half of what it was before the war ...Mexico's
production is declining so quickly it will have to start
importing oil in the next 10 years!

· The U.S. Energy Information Agency has fallen in line
with the International Energy Agency and admits that oil
demand will exceed supply starting in the fourth quarter of
this year. Total world demand is expected to be 86.4
million barrels per day, according to the EIA, while total
world supply is expected to be 85.4 million barrels per
day. The EIA ups the ante by saying there will be a
shortfall in the first quarter of 2006 as well.

Publicly, the White House urges calm and predicts that oil
prices will retreat from their current high levels. But
privately, the U.S. government is quietly planning to add
to existing oil reserves at a furious pace.

Squirreled away in new energy legislation is a directive to
increase the Strategic Petroleum Reserve from 700 million
barrels (70 days' supply of imports) to ONE BILLION
BARRELS. They're adding to the SPR when oil prices are sky-
high. What are they afraid of?

A confidential source in the Department of Energy gave me
the scoop on the addition to the SPR. This stunning new
directive was placed inside the 1,724-page Energy Policy
Act of 2005 without any fanfare whatsoever – it's hidden in
plain sight. And the mainstream media is too busy going to
beltway cocktail parties to notice.

This 42% jump in reserves is so huge, the government
doesn't even have a place to put it all – yet. The plan is
to fill the SPR to capacity with a minimum of market
disruption or undue influence on the market, blah-blah. If
you're planning to fill the SPR when oil is over $60 per
barrel, you aren't planning on getting that oil on the
cheap.

I don't know what is motivating the Bush administration to
boost petroleum reserves. But I do know that two oil men
are in the White House right now.  They probably have
access to raw data on America's oil fields – including
depletion rates – that the rest of us don't. Again, what
are they afraid of?  I'm certainly not going to buy the
"don't' worry, be happy," line peddled by the White House.

Oil Panic: Sure, Latte's More Expensive

Still, there are plenty of people still willing to push the
government line. An analyst recently quoted in a Bloomberg
story tried to push the idea that oil is still cheap,
explaining: "A barrel of Starbucks latte would cost you
$1,500, compared to a barrel of crude, even at $66 a
barrel."

Ri-i-i-i-i-ight! Starbucks coffee is a luxury – that's why
they can charge so much for it. Is oil a luxury? Not right
now. But it might be down the road.

I believe we're careening toward a good ol' fashioned oil
panic. I believe the government knows a lot more than it's
letting on. And I believe anyone who doesn't invest for the
coming energy emergency is a bloody fool.

The time to take action is now. Today's energy crisis is
transforming the world – from geopolitics to the financial
markets to the gas pump to the production cost of almost
every product we consume on a daily basis.   

That's why I've just created an in-depth Energy Crisis
Report. I outline the FOUR FORCES bearing down on energy-
dependent America, forces that could wash over our economy
like a tsunami. I lay out the six likely consequences of
the next oil shock. And you'll learn about the ten energy
companies you should add to your portfolio immediately –
plus, a popular stock you should sell or avoid at all
costs.

[Ed. Note: Sean Brodrick is the Investment Director of the
Sovereign Society and the author of the most important
report you'll read this year...the 'Energy Crisis Report.'
Click here to learn more:

Energy Crisis Report

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And the Markets...