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The Commodity Investor Q&A

With Matt Badiali, editor, S&A Resource Report
Wednesday, April 23, 2008

Q: I saw that Nigerian oil output is going to fall... Doesn't America import oil from there? What are the ramifications? – D.C.
A: The ramifications are, we could be in trouble.
A recent story in the Financial Times covered the possibility that Nigeria's crude oil output could fall by a third in the next seven years. The problem is, Nigeria is one of the top five foreign oil suppliers to the U.S.
Here are the latest numbers from the Energy Information Administration:

Country of Origin

U.S. Imports
(Barrels of Oil Per Day)


1.9 Million

Saudi Arabia

1.5 Million


1.2 Million


1.1 Million


1.0 Million

Now let me show you that same table from a scary perspective... the change in production levels from 10 years ago, and one year ago.

Country of Origin

Change in Oil Production
10 Years

Change in Oil Production
One Year



Saudi Arabia









As you can see, our primary oil suppliers are suffering production declines... except for Canada. The major reasons Mexico, Nigeria, and Venezuela are faltering are lack of investment and government mismanagement. The major reason Canadian production is increasing is the development of its gigantic tar-sand deposits.
So... the short answer to the Nigerian question is "yes... this is bad for the U.S., and it signals higher oil prices." But so does the decline of Mexico's Cantarell field and the idiotic ramblings of Hugo Chavez.
Basically, any bad news you read from these regions is just more of a buy signal for the safe, vast deposits of Canada.
Q: Did you see that a rocket hit a Japanese oil tanker in the Middle East? Will that affect U.S. oil prices? – J.S.
A: Absolutely. Attacks on oil tankers, drilling platforms, and pipelines are all too common today. That's because they make easy targets for any group with a cause and some easily-purchased explosives. What better way to hold a country hostage than to threaten its energy infrastructure?
And now look where you've gotten us, J.S., we're right back to the answer above. We're right back to Canada.
Canada is sitting on a huge oil reserve with a "no risk" transport route to the world's largest consumer. Caribou generally do not engage in the destruction of oil infrastructure.
Q: What oil companies will benefit most from the high oil prices? – A.L.
A: In a recent DailyWealth, I covered the benefits of investing in government-backed oil companies, like Brazil's Petrobras. I think these are big beneficiaries of $117 per barrel of oil.
These majors have many of the benefits of investing in a "non government-backed" oil company like Chevron, except they have huge backers behind them when it comes to securing resources at less-than-competitive rates.
Brazil doesn't entertain outside offers for its choice of offshore drilling blocks. These are some of the most promising offshore fields in the world, they're getting more valuable by the day, and they're reserved for Petrobras.
And let me throw this curve ball in here... natural gas producers.
While the price of natural gas has increased about 40% in the past 12 months, the price of crude oil has skyrocketed 80%.
Natural gas and crude oil can be substituted for each other in some applications, so high crude oil prices act as a magnet to draw natural gas prices higher. That's great news for natural gas producers like EnCana, XTO Energy, Apache, Devon Energy, and Canadian gas trusts. Many of these companies are soaring right now... which tells us the market agrees with the "higher natural gas price" thesis.
Good investing,
Matthew Badiali

Recent Articles
Market Notes
World champion deepwater firm Petrobras reaches all-time high... pulls iShares Brazil to new all-time high along with it.
World champion tar-sands miner Suncor reaches new all-time high.
$119 oil kills airlines... AMR, Delta, AirTran Holdings, Northwest Airlines, Ryanair, SkyWest, and US Airways hit new lows.
Earnings today... Anheuser-Busch, Apple, Freeport-McMoRan, GlaxoSmithKline, Boeing, UPS, Moody's.
Market Watch
Symbol Price
S&P 500 1233.00 +0.4% +12.5%
Oil 37.94 -0.1% +5.8%
Gold 135.37 +0.4% +22.1%
Silver 28.03 +1.2% +63.4%
US-Dollar 80.00 +0.1% +5.3%
Euro 1.32 -0.1% -10.1%
Volatility 17.25 -2.8% -23.9%
Gold Stocks 568.36 +0.9% +25.2%
10-Year Yield 3.22 -0.6% -5.9%

World ETFs
Symbol Price
USA 123.76 +0.4% +12.5%
Canada 30.27 +0.2% +17.9%
Russia 21.86 +0.1% +21.0%
India 36.63 -2.4% +18.2%
Israel 16.75 -0.5% +10.8%
Japan 10.61 +0.2% +6.4%
Singapore 13.80 +0.4% +19.4%
Taiwan 14.93 +0.8% +19.2%
S. Korea 57.92 +1.5% +23.6%
S. Africa 71.71 +0.5% +31.0%
China 43.36 +0.1% -0.5%
Lat.America 51.89 -0.7% +8.1%

Sector ETFs
Symbol Price
Oil Service 136.03 +0.6% +20.9%
Big Pharma 64.18 +0.3% -2.7%
Internet 72.83 -0.3% +29.3%
Semis 16.59 +1.0% +29.5%
Utilities 31.00 +0.4% +0.4%
Defense 18.39 -0.6% +8.9%
Nanotech 10.00 -1.0% -0.8%
Alt. Energy 10.29 +0.1% -2.7%
Water 18.79 +0.1% +15.5%
Insurance 16.32 +0.3% +22.1%
Biotech 20.64 -0.2% +28.4%
Retail 19.57 +0.4% +29.0%
Software 25.04 +0.2% +26.6%
Big Tech 54.13 +0.1% +22.8%
Construction 13.32 +0.1% +17.6%
Media 13.81 +0.1% +23.0%
Consumer Svcs 67.45 +0.1% +24.2%
Financials 56.40 +1.1% +10.3%
Health Care 64.12 +0.2% +1.9%
Industrials 63.80 +0.2% +21.3%
Basic Mat 74.09 +0.5% +27.0%
Real Estate 54.11 -1.1% +22.1%
Transportation 92.01 +0.9% +25.7%
Telecom 22.91 +1.0% +16.5%