From Russia, With Love: $60 Oil Prices

Is $60-a-barrel oil in our future? In our near future? Yep. It's a sure thing.

And once the oil market has cracked that psychological barrier, you should expect it to run higher before taking another breather.

You can thank Vladimir Putin and those apparatchiks who run Russia's economy for the run-up. They've just about guaranteed that Russia's oil industry won't get the foreign capital it needs to expand the number of barrels the country pumps annually.

That's big, bad news for anybody who uses oil, from airlines to commuters, since Russia accounted for about 75% of growth in oil production from non-OPEC, or Organization of the Petroleum Exporting Countries, sources in 2004. Russian production growth peaked at a 12% annual rate in the middle of 2003 before easing to 8% growth year over year in 2004, and then plunging to just a 4.6% annual growth rate in the first quarter of 2005.

In March, according to the State Committee of the Russian Federation, crude oil output climbed even more slowly, by just 4.3% year to year. Official projections call for 5.7% growth in 2005, well above the first quarter's rate but way below the 8% average annual growth from 2000 to 2003.

On the other hand, that's good news for investors in energy stocks, because it just about assures that the recent retreat in the prices of oil and oil stocks is temporary and that stocks in the sector will finish the year well above current levels. The biggest stock market winners from developments in Russia will be energy companies that produce their supply of oil, gas or coal from fields and mines in safe, stable regions.

What Has Happened to Russia?

I'll end this piece with three stocks that I think fit that bill, and I'll add two of them to Jubak's Picks with this column.

But first, some explanation of what has gone so wrong with Russia's oil industry.