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The Price of Oil is Going Up

By Mad Hedge Fund Trader | Thu, 05 August 2010 14:47 | 4

I received another scratchy, crackling cell phone call from my drilling buddy in the Texas natural gas fields today. You could almost choke from the dust on the line.

He told me that the BP Gulf disaster was turning the fundamental assumptions of the oil industry upside down, and that sharply higher oil prices were in the cards, probably $100/barrel by year end.

Major oil companies with deep pockets at risk were rushing to offload their existing offshore leases and partnerships in producing wells to avoid BP’s potential $30 billion hickey.

If nothing else, the majors have learned that liability caps are nothing more than wishful thinking. They can only speculate what a new round of vengeful regulation will cost them.

Hedge funds looking for “the next big play” were willing buyers, but only at substantial bargains.

We are witnessing nothing less than the birth of a new distressed junk market. It is all part of a re-pricing of risk that values offshore assets at a discount, and onshore ones at a new found premium.

Only big swinging dicks need apply, as minimum participations are going for as much as $50 million. The impairment of Gulf assets is also breathing life into the once moribund natural gas market.

Enough gas supplies are being left under the Gulf to offset the enormous new production coming online through the new “fracting” technology, where everyone is using a volume strategy to offset plunging prices.

Gas is not heading off to the races, but supplies will be tight enough to sustain it in a $3.50-$5.00 trading range for the next 18 months.

It all makes me want to go back and buy more ExxonMobil (click here for my piece) and Occidental Petroleum (click here for the report).

I’d love to get more out of my friend, but I don’t think my aged, arthritic back could take another three hours driving down washboard roads in a beat up pickup truck with no springs to track him down at his newest drilling location.

Besides, I already have enough 8 X 10 signed glossy portraits of George W. Bush to last a lifetime, and I didn’t want to hurt his feelings by turning down more.

By. Mad Hedge Fund Trader

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  • Anonymous on August 06 2010 said:
    Had dinner last night here in Wyoming with a small, deepwater driller from Houston and his wife who had just had their deepwell---down to 15,000'---closed down by the feds. He amplified what you just said, especially in talking about how the unlimited liability would essentially put all but the biggest drillers out of business.I will say, I signed a natural gas lease on property I own in Tennessee with an outfit in Dallas several years ago when the market looked bleak, and so the remainder of your post was somewhat music to my ears. They'll start drilling this fall. We are living in interesting times....
  • Anonymous on August 10 2010 said:
    @webutanteI'm 19 years old and aware that there will be no SS checks when I retire. At the moment, I'm studying to work in the psychology field. I save everything I can by not splurging like my generation. My question to you is...what can a guy such as myself invest in to secure my future? Thank you in advance!
  • Anonymous on November 07 2010 said:
    Hey Jonathan, here's what I would recommend: Get a degree in Minining Finance in the US, go to Singapore to learn Chinese or go to Shanghai and learn chinese at the Foreigner's school--takes two years to get a working knowledge of modern Mandarin; get a job with an Aussie company that is exploring Southern China for natural gas and/or an Aussie company exploring for Copper & Gold in Monglia. Have a ball and make a verylarge pot of money. ACEMAN
  • Anonymous on November 09 2010 said:
    Jonathan, it's been months since I returned to this post and you may be long gone. Not sure if you were asking me for investment advice. If so, I'm certainly not qualified to give any.However, I would keep reading sites like this---Oil Price---and Mad Hedge Fund Trader and as you can invest in some of their suggestions in small amounts at, say, a Schwab account. Then keep up with them and know when to pull the trigger and get out.Also reading Investors Business Daily is another investment resource if you have the time.Best wishes

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