Russia Seeks Profitable Latin American Deals

By Rudy Martin | Nov. 25, 2008

With oil prices falling through $50 per barrel now is the time to BUY into Latin American energy stocks. Why Latin American Oil? Cause that’s were the action is. Take a closer look at some unrelated events last week that illustrate what’s going on.

First, Russia’s LukOil was reported as being in discussions to buy 30% of Spain’s Repsol, a leading Latin American oil producer. If so this comes to pass, the transaction would immediately transform LukOil into an international oil producer with real working wells and exploration deals, including in the US Gulf of Mexico.


Whether or not they buy Repsol, the Russians are definitely coming to the Gulf. This week, Russia’s president Medvedev is visiting Brazil, Venezuela and Cuba on his way back from the Asia-Pacific Economic Cooperation meeting in Peru. The Cuba visit is not just a meeting of old comrades. Last month, Cuba announced a potential major 22 billion barrel oil discovery just offshore. The Medvedev visit aims to improve ties, increase trade visibility, and reinforce a peaceful pro-business agenda. Ultimately it positions Russia to become a major economic force and potentially a partner in developing Cuba’s oil fields.


Second, the International Energy Agency released its ever-popular annual World Energy Outlook. Using a modest 1.6% annual energy demand growth assumption through 2030, the world will need 45% more energy. Assuming some conservation, new energy alternatives and a mere $26 trillion in capital investments, daily oil production would need to rise 25%. This is the equivalent of four Saudi Arabias going into production between now and 2030. Not likely given that global oil production has peaked.


Obviously oil prices will again be higher and with falling production and low stock prices, it’s faster, cheaper and better to buy an oil company than drill for new oil.


So how much lower can oil prices go? OPEC last cut production by 1.5 million barrels in October, but as of Friday, West Texas oil fell to $48 per barrel. Lower demand and liquidations of inventories are keeping prices down temporarily. In response, Iran has called for another 1-1.5 million barrel daily production cut and an emergency meeting in Cairo on November 29th. It seems today’s low oil prices will not last long.


Over the last month, the prices of PetroBras, Ecopetrol, Repsol and PetroBras Energia are down and average of 30%!

Did something fundamental change?

No, nothing in the long-term view has changed. But one thing is true: In the case of Latin stock investing, it pays to be a patient investor and buy on dips, as the Russians are attempting.