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Investing In Iraqi Oil

 February 14, 2012 03:32 PM
 


In Douglas Adams' iconic The Hitchhiker's Guide to the Galaxy, Deep Thought tells us the ultimate answer to the ultimate question of life, the universe and everything is "42."

The origin and meaning of that number has always intrigued fans.

But Douglas Adams explained that there was no real rhyme or reason why he chose "42." It just popped in his head and he went with it.

I always liked Deep Thought's answer because 42 is a key number for people in the oil business – it's the number of gallons in a standard barrel of oil.

Now, I don't think there are any sectors as exciting as oil, particularly now. We had a record year in 2011 in terms of prices. This year will be another record year as companies spend $598 billion on E&P. And next year looks like it will be a record year in its own right in terms of price, and it's not even here yet.

[Related -Chevron (CVX): The Second Biggest Oil Seeker Joins The Dividend Yield Passive Income Portfolio]

Why? The U.S. Energy Information Administration (EIA) revealed last week that it expects the price of West Texas Intermediate (WTI) crude to average $104 per barrel in 2013.

That's an astonishingly high yearly average, particularly in a time where Europe and the United States are trying to pull their economies out of the toilet. So a lot of energy investors are looking for opportunities to cash in.

Oil, Oil Everywhere

Right now, the price of NYMEX benchmark crude is over $100 per barrel. And it'll likely stay above that threshold for most of 2012. The Iran nuclear standoff is providing a psychological updraft to price. And this is on top of the number of "black swan" events that drove the commodity markets in 2011.

[Related -Here's My Outlook For The Coming Weeks]

The Arab Spring movement that began in late 2010 led to upheavals across the Middle East, impacting oil supply from countries such as Libya. And ongoing conflicts in Nigeria, Sudan and South Sudan are also weighing in.

But we're about to see major supply bumps in the crude market… And some of the biggest bumps will come from countries that have seemingly fallen off investors' radars.

  • Next year, the first production from Norway's Barents Sea will start flowing.
  • Post-Ghadaffi Libya expects to double production by 2014.
  • The Kazakhstan Kashagan field will see its first commercial output in 2013.
  • Plus, we have all those rich shale plays in North America ramping up production, as well as continuing strength from the Canadian oil sands.

But possibly the most notable is the number of major projects in Iraq coming online. Over the next few years these projects may propel its oil industry to rival that of Saudi Arabia in terms of output.

The Power Struggle Looming As An Industry is Reborn

After nine years of conflict, the United States troops finally left Iraq late last year. It marked the official end of the war.

During most of the post-war U.S.


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