By Rusty McDougal
March 5, 2009

Though I’m a “resource guy”, you seldom see me write about oil. It is, in fact, one of my presently favored commodities. It’s time for an updated analysis. The best time to take investment positions is when the masses are looking elsewhere.

This is the very essence of contrarian investing. When the masses are counting on the market going one way, odds are that it will go the other way.

Let’s first look at a few well-known oil fundamentals and then at three lesser known but exceedingly bullish factors.

Now, you’re not likely to amaze your friends and family with these frequently trotted out oil factors. You likely heard these factors and many more last summer when all the $200 to $250 per barrel oil projections were commonplace.

IDE’s job is to provide uncommon insight into past, present and future events. Along these lines, Rick Pendergraft had the following to say last July … “The world, not just the U.S., is bordering on an economic crisis and much of the fault lies with hugely inflated oil prices”. Rick was right about inflated oil prices and I stated they were excessive at the time as well.

OK, McDougal, what are your uncommon convictions about the oil market right now?

1. Oil was officially taken down last summer. Fine American institutions like Goldman Sachs and JP Morgan are fully capable of moving markets in either direction and profiting accordingly. Do you think you could make a few bucks if you absolutely knew the direction a market was to be taken? I have zero confidence in the integrity of elitist paper markets, be they gold, silver, oil, Treasuries or orange juice.

You may review an article by Rob Kirby on the details of the oil takedown last summer. Frothy markets are especially susceptible to interventions because, rightly or wrongly, too many people are on one side of a trade. Oil was way overpriced at $140 and it’s way under priced at $44. The oil market is another prime example of manipulation, outright fraud and greed. Market manipulations against underlying fundamentals are exercises in folly on a long-term basis.

2. Global oil trading takes place in US Dollars because the dollar has been the world’s reserve currency since the 1940s. As a reward for this privilege, the US has exported unfathomable amounts of debt and toxic fraud to the rest of the world. The historic economic mess we’re now facing is a direct result of these actions.

Oil will go much higher as the dollar inevitably falters and possibly crashes. The dollar has appreciated recently only because of the liquidity crisis and a perceived “rush to safety”. Watch the dollar and watch our Treasury markets. All fiat currencies are set to crumble compared to tangible assets like gold, silver and oil. I agree with our own Ted Peroulakis’ recent $2000 projection for gold.

3. Global currency blocks are being formed in anticipation of the dollar losing its reserve currency status. The Euro was designed with this in mind, but it has problems of its own right now. Replacement currencies are being designed with commodity connections once again. Gold is front and center, but you should expect oil to be thrown into the mix as well! These events are now inevitable.

In summary, you should definitely not plan on long-term cheap oil and gasoline. I expect to see oil rise to the vicinity of $60 over the medium term. We did not add oil or natural gas positions to my Resource Windfall Speculator portfolio when oil was spiking, but we are now on a very selective basis. Now is the time to be looking into oil stocks.

These are chaotic days and you need to protect yourself accordingly. It’s also the time we should be working toward honest markets and a government with integrity. This could be one of the few benefits of this current fiasco.

Invest Resourcefully,

Rusty