As far back as 2001 we were predicting - here at MoneyWeek - that the oil price would go high and stay high. Most experts disagreed with us then. They still do. Last year there was a consensus that, following the war in Iraq, oil prices would fall back from their peak of $35 a barrel to end the year somewhere in the low $20s. Now there is a consensus that, once spring arrives in America, oil prices will fall back to the low $20s from their current level of $33. The consensus was wrong last year and I'm pretty sure it will be wrong again this year.
This isn't just down to the falling dollar. It is a function of soaring demand and capped supply: China, the US and India are all displaying insatiable appetites for oil (Chinese demand rose 10% in 2003 and is forecast to be up a good 6% this year). At the same time, non-Opec supply from the likes of Nigeria and Venezuela is pretty chaotic, Iraqi production continues to be hampered by technological problems and there is increasing evidence of political instability in Saudi Arabia, one of the world's largest producers. Then there is Opec. Generally, the group has been disciplined about controlling supply over the last couple of years and this week's surprise production cut has made it pretty clear to the US that the degree of purchasing power its member countries are prepared to give up in the face of the falling dollar is pretty limited.
So the risk is not that oil prices will fall, but that tight supply and rising demand will keep pushing them up. That is excellent news for the oil firms - particularly the smaller ones. Consider BP's announcement that it is to raise its oil-price forecast from $16 to $20. That suggests it intends to bump up its level of capital spending and that's good for the oil service companies. Then there are the exploration firms - higher oil prices make their efforts worth more. Edmond Jackson, writing in The Sunday Telegraph, suggests looking at Hardman, a UK-listed Australian company with a good prospect in offshore Mauritania.
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Companies with exploration interests may also be the place to be if you are buying into gold - another of our favourite investments. Gold expert Paul van Eeden points to two Canadian listed prospects, Gabriel Resources and Gammon Lake Resources, as good buys. The majors in the sector all trade at premiums to their net asset value. These two trade at discounts.
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