Meanwhile, Out in the Oil Patch…

by BWK ~ February 28, 2008

Meanwhile, Out in the Oil Patch…

Oil had been trading in the range of $88-96 for the past couple of months. But then, in the past 10 days or so, oil started to break out upward. Is this just a temporary spike? That is, are we going to see a price break for petroleum?

Well, a number of very smart people — including our old acquaintance T. Boone Pickens — think that oil is due for a downward correction. OK, maybe in the short term. But when it comes to the long-term outlook, T. Boone believes that we peaked in 2005. That is, world oil output peaked three years ago, and we have been living on borrowed time and good luck ever since.

So if oil does take a dive, it won’t last for long. OPEC has already announced that if the price of oil falls, the cartel will just restrict output and drive prices back up. Thus, if oil prices decline, be ready to step in and bulk up your portfolio with the best of the oil finders and oil service companies. These include Apache (APA: NYSE), Halliburton (HAL: NYSE) and Baker Hughes (BHI: NYSE).

And if you want a great small company with excellent potential, I expect to see some good news from TransGlobe (TGA: NASDAQ) in 2008. The TransGlobe acreage in southern Egypt is a geologic analogue to some of the prolific limestone formations across the Red Sea Rift in Saudi Arabia. In other words they could be sitting on some huge deposits of oil and that could get very interesting in a hurry.