In Sept 2007 I wrote the reasons why oil prices might spikes to $90 and beyond. But if you were reading that piece of article back then you might screamed FinanceTwitter has gone crazy. With current oil prices above $102 a barrel (in fact it traded close to record $104 on Tuesday trading) you might laugh at how cheap the black gold was at $90 a barrel six months ago. Was there any magic lamp that I’ve rubbed and told by genie that oil prices would skyrocket?

Nope, it was based purely on the basic of how global markets will react to Federal Reserve’s interest rate cut. You cut interest rate, the dollar plunges and everyone runs for shelters under the name of oil, gold, copper, wheat and even palm oil. Central bank happily left the OPR (overnight policy rate) unchanged at 3.5 percent. Riding on the weak dollar, the Central Bank achieved two things – Ringgit strengthens on itself and the lower external loan repayment.

Oil prices to go $120 or even $130

But what if I were to say the oil prices might rise to $120 or even $130 a barrel? I bet you wanna knock my head off *grin*, don’t you? Well, the reality is nobody dares to bet their souls and fortunes that oil prices will not go to $120 or $130 level. Not after the oil prices went from as low as $51 a barrel in early 2007 to the mind-boggling $100 at the end of 2007. That’s almost 100 percent appreciation within a year, mind you. And what could possibly stop it from appreciates another 30 percent within 2008? Aren’t I’m over-generous with the estimated $130 a barrel (30 percent upside)?

Forget about the fundamental justification(s) for such a ridiculous high oil prices because you can’t find one. There’re simply too many factors that could blow off the oil prices. The crazy President Bush could launch an attack at Iran before his term ends. The OPEC could go crazy with their output decisions. Some mad people might blow off oil supplies and so on. The biggest and obvious factor is the fact that Ben Bernanke has no other choice but to keep cutting the U.S. interest rate until the economy crawl back to its feet.

So, AirAsia Berhad (KLSE: AIRASIA, stock-code 5099) Tony Fernandes might be right (and smart) after all when he revealed that the company had actually hedge the oil prices with $130 call options within the duration of six months. With the current election fever rising, somehow the high oil prices will bring you back to the campaign promises by oppositions. On one hand you’ve ruling coalition brainwashing brainstorming people that fuel prices hike is inevitable. On the other hand oppositions are justifying that it’s possible to reduce the fuel prices by taking RM10 billion of the RM80 billion annual net-profits from Petronas to subsidize it, without causing the nation to go bust.

Oil-Stocks to Monitor

With the escalation of oil prices, both parties will shout even louder their stands. Anyway, investing and trading wise, there’re some oil-related stocks that you should pay attention to. Study their fundamentals and technical analysis. You could find some hidden gems that could make you money.

• EOG Resources, Inc. (NYSE: EOG, stock) – explores, develops, produces and markets natural gas and crude oil primarily in major producing basins in the United States of America (United States), Canada, offshore Trinidad, the United Kingdom North Sea and other international areas.
• Transocean Inc. (NYSE: RIG, stock) – primary business is to contract these drilling rigs, related equipment and work crews primarily on a day-rate basis to drill oil and gas wells – specializes in sectors of the offshore drilling business with a focus on deepwater and harsh environment drilling services. Transocean, the world’s largest offshore drilling contractor merged with smaller competitor GlobalSantaFe Corporation (formerly NYSE: GSF), an offshore oil and gas drilling contractor, owning or operating a fleet of 61 marine drilling rigs, charges on a daily rate basis, on July 2007.
• Schlumberger (NYSE: SLB, stock) – an oilfield services company, supplying technology, project management and information solutions.
• EnCana Corporation (NYSE: ECA, stock) – is a holder of natural gas and oil resource lands onshore North America.
• Halliburton Company (NYSE: HAL, stock) – an oilfield services company and a provider variety of services, products, maintenance, engineering and construction to energy, industrial and governmental customers.
• Valero Energy Corporation (NYSE : VLO
  , quote) – owns and operates 18 refineries located in the United States, Canada and Aruba that produce refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen).

Other Articles That May Interest You …

• Contamination – Dead votes & soldiers’ Double votes?
• Tony’s AirAsia, to Privatise or Not to Privatise
• Oil prices at $100 a barrel on third day of New Year 2008
• What to do during US Economy Slowdown?
• Fuel Price Hike of 90 cents to RM2.82 a liter next year?
• Oil prices establishing $90 as the new base
• Reasons Why Oil Price might spikes to $90 and beyond
• Rate Cut’s effect – high Oil Prices and weaker Dollar

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March 4th, 2008 by financetwitter

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