Crude oil may not only be the best commodity play for 2012, it could prove to be the best commodity play of the next three to four years, soundly beating both gold and silver. I’m not talking about oil producers, refiners or drillers…or any individual stock – but the real thing: crude oil itself.
Don’t get us wrong, we still like gold and silver and will probably recommend jumping back into silver shortly. But you can’t pour gold into a farm tractor and use it to grow more food. You can’t pump silver into a 747 and use it to transport cargo. You can’t use gold or silver to make overall production more efficient and generate a higher standard of living. In fact, you can’t do any of these things without crude oil. This is why crude is and will continue to be the world’s most essential commodity.
5 Reasons to Buy Crude Oil Now
1) Oil supplies have peaked – oil supply lags discovery by approximately 40 years. New oil discoveries peaked in 1965. Not surprisingly, production has basically flat-lined since 2005. Despite all the press given to new deep water discoveries and North American shale supplies, new production is not keeping up with the depletion of old wells.
2) Producing nations are consuming more of their own output and exporting less. Saudi Arabia, Iran, Norway and Venezuela are exporting far less oil than they did in 2006.
3) Global population is growing rapidly and more people are growing accustomed to better, more energy-dependent lifestyles.
4) Crude oil is decoupling from the dollar. For most of 2011, crude oil was a “risk on”, short dollar play. No longer. Crude is rallying in both strong and weak dollar environments. This is bullish.
5) The odds of a pre-emptive strike against Iran (the 3rd largest oil producer) are the highest they’ve been in years. 33% of global tanker traffic passes through the Strait of Hormuz which Iran has threatened to close in retaliation for global trade sanctions. Expect it to make good on those threats if bombs start falling on its nuclear facilities.
Therefore, we believe crude has a better chance of doubling from its current $100 per barrel level than gold has doubling from its current levels of $1,575 per ounce. It’s not that we hate gold. We don’t. Some of the same conditions that favour crude will also favour the shiny stuff. But for “bang for the buck,” we feel crude oil is the best opportunity on the board right now.
Publisher’s Note: This is an edited version of an article that originally appeared in Markets and Money US (www.dailyreckoning.com).
Steve Belmont is a founding partner and Senior Market Strategist for the RMB Group. He is also managing editor of the exclusive US alert service, Options Edge.