Wednesday, August 04, 2004

Oil at $44/bbl! What's a poor boy to do?

Oil price futures reached a record high today. OK, adjusted for inflation, the price of oil in 1979-80 was nearly double of what it is today. But oil has doubled in price in the last 2.5 years. There are short term excuses all over the place for why this price run up has happened, but fundamentally it is a supply and demand issue. Demand is soaring - all over the world. Supply is not keeping up.

Even the Oil and Gas Journal, the mouthpiece for the oil industry, is weighing in on the supply and demand situation with a series of articles under the heading "Hubbert Revisited". These articles, which are addressing the very real liklihood that age of oil is comming to an end, would have been called heresy by the readers and editors of the OGJ just a few years ago. (For those who don't know, M. King Hubbert was a geologist working for Shell in the 1950's when he predicted that US oil production would peak in the 1970's. His prediction went over like a turd on the dining room table and he was nearly lynched by the industry for that prediction, though it was spot on.)

Oil is the life's blood that the world's economy runs on. It is also a drug, something akin to methadone, or nicotine. When this stuff starts running short, people go crazy and bad things happen - especially to the weak (wars, famines, recessions, depressions, road rage, gas station line rage, etc.).

There are a number of books that have been published on the consequences of reaching "Peak Oil". There are also some great web sites, some of which are linked to on my side bar. However, for the beginner, I would suggest checking out The Wolf at the Door.

Anyway, the question is what can we, the weak, powerless, blog community do about this?

How about make some money! See I can sound Republican after all.

Oil will still be valuable long into the future. Hydrocarbons are needed for many, many, many, many things besides fuel. As my friend Robert is fond of saying "Oil is too valuable to burn!" Not only that, but the price is only going to keep on rising, perhaps dramatically both in terms of magnitude and time frame, and the sky may the limit. If you own a long lived supply of oil you will be very wealthy.

OK, who owns a long lived supply of oil - Saudi Arabia. I guess that supply is off limits to us mere bloggers. However, there is a very long lived supply of oil just north of the US border in Alberta. This supply is contained in the Athabasca Tar Sands and is over 1 trillion barrels of oil in place. This oil supply is worthless if the price of oil is at $20/bbl (US) or lower because it costs that much to get it out of the ground. However, above $25/bbl this supply of oil starts becoming profitable to go after. At $40/bbl it is very profitable. At $60/bbl the companies going after this stuff are basically minting money.

So I am putting my money where my mouth is and am buying stocks of companies heavily involved in this business. So here are my stock tips. Use them at your own discretion.

Canadian Natural Resources
Western Oil Sands
Shell Canada
UTS (very, very speculative - penny stock)