OPEC’s failure to increase output has raised speculation as to whether worldwide supply can meet future demand. Many believe OPEC won’t increase output because it can’t, and if that’s true, where will future supply come from?

There’s a  Black gold rush on the US’s 95 Billion Barrels of Black Gold.

ExxonMobil (NYSE: XOM  ) recently reported the largest discovery in the Gulf of Mexico in the last decade. The company estimates the wells hold approximately 700 million barrels of oil. That’s a 35-day oil supply based on current U.S. consumption rates.  

Royal Dutch Shell is launching development on a sizable discovery in the Gulf. Last year, the company discovered an oil field capable of producing approximately 140 million barrels over its lifetime. Based on current consumption of roughly 20 million barrels a day, the Shell discovery is enough oil to meet U.S. demand for approximately seven days.

Surprisingly, ATP Oil & Gas (Nasdaq: ATPG  ) is one of the most active drillers in the Gulf. The company ranks fourth in deepwater Gulf of Mexico wellbores and in total, holds 144 million barrels of oil reserves in the region. 

All told, the Gulf of Mexico is estimated to hold 45 billion barrels in recoverable reserves. Drilling activity is picking up again after the temporary halt in production in the wake of the BP oil spill. But the hunt for oil doesn’t stop in the Gulf.

There are numerous onshore supply sources as well. The Eagle Ford shale in Texas is chief among these. EOG Resources is a big player in the fertile oil field. The company reportedly has 900 million barrels of oil in the region.

Marathon Oil (NYSE: MRO  ) sees potential in the shale as well. The company recently shelled out $3.5 billion to double its land position in the region. Marathon now holds a top five acreage position in the promising oil field.

Chinese oil giant CNOOC is betting big on the Eagle Ford shale. Late last year, the company paid Chesapeake Energy (NYSE: CHK  ) $1.1 billion for 30% of Chesapeake’s acreage in the oil field.

All told, some project the Eagle Ford shale holds about 25 billion barrels of oil, making it the most significant recent oil discovery in the United States.

Another significant discovery is the Bakken shale in North Dakota. The United States Geological Survey estimates the recoverable reserves at 24 billion barrels in the region.

Continental Resources (NYSE: CLR  ) is the top producer in the Bakken and is expected to triple production in the region over the next three years. Continental has high hopes for the future. The company is setting a growth goal of 300% over the next five years.

Kodiak Oil and Gas (AMEX: KOG  ) is another explorer targeting the Bakken. Kodiak recently acquired 25,000 acres in the Bakken, increasing its net acreage position to 95,000. 

Then there’s the highly debated Arctic National Wildlife Refuge. It’s hard to predict how much oil the region contains, but the mean estimate of geologists places the figure at 10.4 billion barrels of recoverable reserves.

That’s a lot of oil, but the problem is many believe it would take several years and a significant financial commitment before we experience the benefit from exploring the wildlife refuge.

Last year, ConocoPhillips (NYSE: COP  ) pulled out of Alaska claiming that investing in the region is not competitive with other exploration projects. However, expect ANWR exploration talks to heat up again with oil prices on the rise.

Below is a table summarizing the potential impact of some highly targeted oil fields based on current U.S. consumption rate of 25 million barrels a day.

The bottom line
All of these oil fields could partially pick up the slack for OPEC. But keeping up with U.S. as well as soaring worldwide demand will become increasingly difficult.

Investors should look to add some black gold to their portfolio, as the economics favors companies exploring for this valuable commodity. With situations like this in mind, The Motley Fool has created a new special oil report titled “3 Stocks for $100 Oil,” which you can download today, absolutely free. In this report, Fool analysts cover three outstanding oil companies, including the stock Fool analyst David Lee Smith calls the “energy king.” To get instant access to the names of the three oil stocks, click here — it’s free.

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There is a dark shadow hovering over the US dollar and the ability (or, rather, inability) of the US federal government to pay its way in the future.

Below is a chart that shows the percentage of US government income that goes to pay interest on the national debt. It also shows the historical price of gold in real terms.

Before 2010, the chart uses historical data for both gold and the percentage of revenues going to pay interest. In the years ahead, the interest payments are an estimate based on known outstanding US debt and the anticipated rates. It’s just following the math.

As you can see, in the immediate future, interest on the debt will eat up more and more of the overall federal revenue stream. That’s because national debt and interest on that debt are growing far faster than taxable GDP.

What does chart this mean to you, as an investor? It means that within the investment horizon of every Outstanding Investments subscriber age 12-92, we’re staring at the potential for utter economic devastation. If you’ll grant me a bit of artistic license in all this…life as we know it in the US could come to a crashing halt.

From the standpoint of investing, the chart also gives us every reason to anticipate even higher prices for gold, and, by association, silver. So if you don’t have some gold and silver, get some.

Historically, the gold price rises when there’s an increasing percentage of federal revenues going to pay interest on the national debt. And historically, the gold price declines when US interest payments move down as a percentage of federal revenues.

So if you follow the correlations on the chart, the forecast for the price of gold is simply up, up and away. That is, by 2020, we may be living in a country where the government is chronically insolvent, due to interest payments, and gold is going stratospheric.

We’ll enter into an era when the government won’t pay its day-to-day bills on time, if it pays them at all. Eventually, we may see the US currency in free fall, if not collapse. That’s why your ONLY real long-term hope in all of this is to invest in “real” assets – things that will retain value over time. Energy and minerals come to mind, certainly to include physical gold and silver.

The mainstream media and old-line politicians pretty much ignore the looming debt crisis, or they talk around it. And compare this sense of economic non-urgency with how the media and bureaucrats deal with, say, the idea of “global warming” – a scientific possibility, but something subject to much debate.

It’s as if protecting future generations from the possibility of a few extra fractions of a degree of atmospheric temperature – over the next century – is a high mission. Yet there’s no need to wrestle with the absolute certainty that the country is immediately mortgaging its financial future. The US economy is loaded down with untold trillions of dollars’ worth of debt, and it’s only getting worse.

Why is that? Why the neglect? Why isn’t every church bell in the country ringing, sounding the alarm over the financial catastrophe that’s happening before our eyes? Perhaps it’s because addressing the idea of so-called “climate change” will increase the power and control of the political class. While dramatically cutting the federal budget and letting the private economy grow will reduce political power. Can’t have that, right?

During the last ten years, Outstanding Investments became the nation’s the No. 1 investment newsletter, according to Hulbert’s Financial Digest. We earned that spot by recognizing the frailties of the American economy and, by extension, the US dollar, long before most other investors. We continuously advocated investments in hard asset sectors like precious metals and energy. Fortunately, most of these investments performed very well.

The road ahead looks a lot like the road behind. Unless and until America’s leaders become serious about addressing our broken finances, Outstanding Investments will maintain course and speed – advocating investments in traditional hard assets like gold and silver, as well as investments in non-traditional assets like the “rare earth” elements.

Regards,

Byron King
for The Daily Reckoning

Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.

R

U.S. Macro in Three Charts: Credit Flows

The U.S. is suffering from insufficient aggregate demand the result of the bursting of the 2004-07 credit bubble.   The consumer led economy financed by borrowing, much of it backed by home equity,  has given way to massive private sector deleveraging as reflected in the charts below.  To cushion the blow, the federal government stepped up deficit spending in an effort to replace the decline in demand.  This is clearly illustrated  in the charts below.

The latest data from the Federal Reserve’s Flow of Funds Accounts show that private domestic credit borrowing of the non-financial sector is still at very anemic levels (see middle chart) .   Though total private non-financial credit growth was flat in Q1, corporate continued to strengthen and consumer credit was positive for the second straight quarter.  This was offset, however, by continued deleveraging in the mortgage and non-corporate business sector.    The negative borrowing is likely both supply and demand constrained.

The charts are revealing as they also illustrate the sharp Q1 drop in public sector borrowing with state and local government turning negative.    Unless private credit significantly improves — net mortgage lending turning positive, for example – to help finance the expansion of domestic demand, the economy will likely remain sluggish as the crunch in public spending continues.   After all,  President Obama did say that “the flow of credit is the lifeblood of our economy.”

Corporate spending and the export sector will have to do the heavy lifting as the U.S. works its way through the credit mess.   The President needs a positive Black Swan event, such as the explosion of the internet, which drove high levels of investment spending during the Clinton Administration,  for example.

Policies to free up financing for small and non-corporate businesses and renewed efforts to clean up mortgage sector, which also allow housing prices to bottom,  could help strengthen the recovery.   Stay tuned, we’ll be back with more analysis of the Flow of Funds.

(click HERE if charts are not observable)