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Wednesday, September 13, 2006

Sell Oil Stocks, The Price Is Going Down (XOM)(CVX)(COP)

The head of Saudi-Arabian Oil, the big state-owned energy company, told the Associated Press that only 18% of the world's oil has been tapped. What is still in the ground, according to him, 4.5 trillion barrels, enough for 140 years at current consumption rates. His comments may be based on the fact that oil is being recovered from places like the Gulf of Mexico, which was too hard to recover until recent technology allowed drillers to get to it.

A lot of analysts would disagree with teh Saudi-Arabian analysis, but even if it is partially right, oil prices are unlikely to hold $60. If he is proven right in the next few years, oil could head back below $50.

This would not be good news for Exxon, Conoco, and Chevron. Although it does mean that they still might be in business in 140 years instead of having folded for lack of product.

Oil prices have driven higher profits for all of the large producers. New oil fields going online in the Gulf, in West Africa, and off the coast of Russia are some evidence that new reserves will be found. And, technology advances may extend this.

Oil has already come down over $10 a barrel as consumption has slowed somewhat and news of new fields and more fuel efficient cars presses the case that consumption may not rise.

If all of these trends continue, prices will drop, and so will profits.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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