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Saturday, May 17, 2008
In 1914, Winston Churchill created a new type of corporate monster.
Twelve years earlier, a wealthy Englishman named William Knox D'Arcy had founded what would become the Anglo-Persian Oil Company. His drillers fought small pox, bandits, and scorching heat while looking for oil in Iran. After years of failure, the company made its first large oilfield discovery in the Middle East.
Anglo-Persian sold shares to the public in a speculation-charged atmosphere. People lined up to buy stock. Ownership of the company was heavily tilted to the Anglo side.
By then, Churchill had moved the Royal Navy toward burning oil for fuel instead of coal... and he needed Anglo-Persian's interest aligned with the state's fuel needs. The British government bought a 51% stake in the business... and the first state-owned oil company was born.
Six weeks later, Germany invaded France, kicking off World War I. Fighting wars requires lots of oil... and Anglo-Persian grew into one of Britain's biggest suppliers.
Nowadays, government-backed oil companies are the most dominant companies on the planet... and some of the best investments.
You think ExxonMobil, the world's largest public company, has a lot of oil? Saudi Arabia's government oil company, Saudi Aramco, has 10 times Exxon's reserves.
Exxon doesn't even place in the top 10 companies by reserves. The government-backed oil companies of Russia, Iran, Iraq, Algeria, Venezuela, and Mexico dominate the list.
Yet most politicians want to tax Exxon and its peers to death... all the while calling for cheap gasoline. Meanwhile, state-owned oil companies receive the most promising exploration licenses on their home turf. And they have government backing in trade negotiations.
Brazil and its state-owned oil company, Petrobras, demonstrated this power after the discovery of the enormous offshore Tupi field. After the oil giant made the discovery last year, Brazil pulled choice exploration blocks off the market. They'll go straight to Petrobras.
Trouble is, you can't invest in most government-backed oil companies. They're not for public investors.
However, there is a short list of great government-backed oil companies out there with public shares...
If you're adventurous, you can own shares of Russian natural gas giant Gazprom. S&A Oil Report readers have gained 180% on our Petrobras shares. We're also up big in Norway-backed StatoilHydro.
GOLD IS NOW "SUPERCHEAP"
Gold and oil, the poster children of the commodity bull market, are at odds with one another.
Because they respond similarly to inflationary pressures, gold and oil generally move in tandem. Over the last 25 years, one ounce of gold has been able to buy, on average, about 15 barrels of oil. Right now, however, one ounce of gold will buy you just seven barrels of oil, less than half its traditional purchasing power.As this chart shows, we've been in a similar situation less than 10% of the time in the last 25 years. During these times, gold has outperformed oil by an average of 8% over the following three months. So if you don't own any gold, now is a good time to pick some up.
– Ian Davis