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Oil may have retreated to just below $60 from its record post-hurricane highs of $70, but don’t expect it to fall below $50 in the near future.
The market remains tight, with Opec pumping close to full capacity and much of US production still offline, thanks to hurricane damage. What’s more, Société Général pointed out last week that Chinese demand seems to be accelerating.
And according to the International Energy Agency, prices could surge higher by 2030 unless Saudi Arabia spends billions on boosting output and the US, China and India curb fuel use. Asian industrialisation is expected to boost global demand by 50% over the next 15-20 years.
Given the long-term bullish outlook, one promising play on this is Burren Energy (BUR, 823p), says Peter Klinger in The Times. Burren holds a 35% stake in a massive oil-producing field in Congo-Brazzaville. The recent discovery of three new wells that have tested positive and the possibility of a fourth gives the stock further upside potential. On a 2005 p/e of ten and a projected 2006 p/e of eight, Merrill Lynch has given Burren a strong buy recommendation, citing high growth potential, merger and acquisition possibilities and a compelling valuation. Merrill Lynch has a price target of 1,015p and believes Burren has been conservative with its estimates for production.
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Annunziata Rees-Mogg
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