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| Thursday, July 31, 2014 | Issue #2344 | |
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The Oil Market's Next Crisis Sean Brodrick, Resource Strategist, The Oxford Club
 I'm glad I'm not in OPEC members' sweaty Gucci loafers right now. Sure, it must be nice to be an oil gazillionaire. But consider the problems.
Oil production from OPEC members is down all over the place. Libya still hasn't recovered from its 2011 uprising. It's exporting only a third of the 1.4 million barrels per day (bpd) of oil that it could produce at full capacity. A Sunni uprising in Iraq threatens that country's oil production.
OPEC doesn't expect production to recover anytime soon. It says non-OPEC producers would have to step up and meet increasing oil demand.
Here's the thing: OPEC has another cause for concern. One that wasn't in its recent forecast.
It's a big one. And it could ignite before February.
That problem is Nigeria.
Nasdaq in trouble?
Most Americans had no idea... But a recent attack on the Nasdaq nearly brought down the entire tech exchange.
And now, the Pentagon warns that more attacks may be on the way.
We could all be severely hurt financially.
That's why I want to give you a FREE survival guide (a $67 value) to protect yourself from the coming attack. | |
Corrupt and Violent
Nigeria is the largest oil producer in Africa. Production hit 1.98 million bpd in June. Revenues run to tens of billions of dollars per year, but the country is so corrupt that much of the money disappears.
For example, the governor of Nigeria's central bank said the state-owned National Petroleum Corporation failed to transfer $20 billion in oil revenue to the national treasury. All the cash vanished into private accounts. Wow!
Meanwhile, oil spills are sparking local outrage. Crude oil and fuel oil theft is rampant.
Yet all of this pales compared to the biggest threat I see: The militant Islamic group Boko Haram. Sure, they're haven't attacked the oil fields and pipelines... yet. But just wait.
Best known for its kidnapping of 200 schoolgirls, this gang of heavily armed cutthroats has no morals or qualms whatsoever. Boko Haram is waging genocide on the Christians in Nigeria's north. And the rate of their attacks is ramping up.
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Boko Haram is fighting to overthrow Nigeria's government. It wants to establish a Muslim caliphate.
The group has drawn strength from public disgust with the corruption-riddled central government.
You might say every barrel of oil produced in Nigeria worsens its corruption and boosts support for Boko Haram.
Oil Wells at Risk
In February, Nigeria will hold elections. There's no guarantee that Boko Haram will attack oil wells and pipelines leading up to the election. But the U.S. House of Representatives thinks it could happen.
A congressional report made this point:
Boko Haram has already adopted many of al-Qaida's targeting tactics. If Boko Haram continues this trend, Nigerian oil facilities will be in the crosshairs.
How much of Nigeria's 2 million bpd could be removed from the market by terrorist attacks? And how would that affect us?
The U.S. imported 5.6 million barrels of Nigerian oil in the month of April. That's a little more than 186,000 barrels a day. It's also more than double the 2.75 million barrels of Nigerian oil the U.S. imported in January.
So, we do face some supply and, therefore, price risk.
U.S. oil production keeps rising. But even booming domestic production won't be able to make up for losing Africa's largest oil producer. Not with the rest of the world's growing thirst for crude.
So if Boko Haram does attack Nigerian oil facilities, expect prices to spike. And they could stay high for a while.
Good investing,
Sean
Editor's Note: Terrorist groups might be able to disrupt supply and increase oil prices for now. But our David Fessler recently discovered a little-known U.S. company that's found a way to produce oil for $0.28 a gallon. That's cheaper than water. When this technology enters wider use, it will change everything. It could be your ticket to millionaire status. Read the report by clicking here. | |
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In today's edition of Investment U Plus, subscribers learn about America's surprising oil supply problem, and one great way to profit from it. To learn how to access the premium version of Investment U, click here. | |
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