Oil Prices Continue To Rise

The Dynamic Wealth Report
November 26, 2007

Oil At $250 A Barrel?

The Strait of Hormuz is about 35 miles wide, and it is situated at the
mouth of the Persian Gulf.  Iran sits on one side of the waterway, while
United Arab Emirates and Oman sit on the other.  16% of the world’s oil
production (about 13.4 million barrels) is transported through the
strait every day.  To put that in perspective, the US alone consumes approximately 10 million barrels of oil a day just to put gasoline in our cars.

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Now most people have no idea where the Strait of Hormuz is, but I
guarantee that if oil supplies are disrupted the entire world will be
focused on this one little spot.  The scary part about this whole scenario is that in certain areas the space that oil tankers can navigate is only
2 miles wide.

Iran has already threatened to disrupt oil supplies through the Strait
of Hormuz if they don’t get their way.  If they were able to shut down
oil transportation for even a little while, oil prices could spike to over
$250 a barrel.  Think $7 or $8 dollar gasoline.

Some argue that alternate plans are under consideration.  I have heard
of two.  One plan is to build a pipeline around the strait, which would
take years.  The other option is to release supplies from strategic
oil reserves, which is only a temporary fix.

I estimate there to be a very small chance of the Iran / US conflict
escalating toward military action.  However, if something happens we
should be prepared as investors.  Knowing what trades to make in just such a situation will help us profit if these worst case scenarios come
true.

Our first option would be to stockpile oil, but unless you own a really
big storage tank, it’s not easy to do.  Second, we can invest in oil
exploration and production companies, but everyone has already done
that and prices are extremely high.

My thought is to look at the shipping companies.  No matter what price
oil is at, you can only make money if you can deliver it.  Shipping
companies are designed for delivery.  In the worst case scenario
their services will be in higher demand and they will have the ability to
raise their shipping rates.  It's definitely one space to keep an eye on.

•  Insurance Companies (Down 12%)

The Dow Jones Insurance Titans index is down more than 12% since the start of November.  Concerns over exposure to financial instruments that were tied to the mortgage market and subprime loans lead the fall.
European insurance firms were hit hard as they announced unexpected
exposure.

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