There is no term more misused than “energy.” People talk of wind turbines and solar panels as energy. Technically, this is incorrect. These are sources of energy, but are they ready to move goods and services, in our everyday economy, to your front door?
Energy is a readily available source that moves people, goods and services, and generates output that moves our economy every day. Ninety-five percent of everything that goes from point “A” to point “B” is done with oil (source: International Energy Agency). We drive to work and get goods and services delivered to our local stores, all via oil.
We have not updated our infrastructure to use another form of energy, at least not up until today. For example, there are no solar reserve batteries at every gas station, so we have the opportunity to reenergize our solar cars.
Oil remains our primary source of energy. So oil stocks are still very promising.
There is a great debate over the “peak oil” theory. I’m not here to dispute exactly when we will reach peak oil, but do acknowledge that we are close, probably in this decade. I am sure that is why some oil stocks have been down.
There are a few factors that are compounding this “peak oil” problem. In the 1930s, when we first started to dig for oil, it took one barrel of oil output to retrieve 100 barrels of oil. This means that the trucks and machines that operated at the wells, for every one barrel these machines consumed to mine for oil and the transportation of oil to the consumer, 100 barrels were made available to the public (at your local gas station).
As of a few years ago, it took one barrel of oil used by high-tech machines (more efficient than the 30s) to mine just 11 barrels of oil to the consumer. This means that the easy oil fields are depleted. Now that the easy oil has been consumed, we are going 5,000 feet under the ocean floor to mine for oil. We are going after wells that don’t produce much oil, but it is all we can find.
This disturbing trend, plus the fact that the planet has grown to almost seven billion people, plus the fact that China and India have created a middle class that is growing and demanding cars, which is fuelling their oil consumption needs, is making the situation worse.
There is a reason why the International Energy Agency is using these numbers and calling out to politicians around the world to address the problem. We are now mining oil in the Alberta oil sands; however, it is expensive to do, at a cost of $70.00-$80.00 a barrel by some estimates, but we need it because we can’t find other sources.
Furthermore, in 2012, with the tensions in Iran, and Israel, Russia, China, Europe, and the U.S. involved; the tensions are mounting and war is a real and significant possibility. This will send oil prices rocketing higher, possibly to levels we’ve never experienced before!
We have a growing global population coupled with a rising China and India, coupled with less supply of oil. All this spells higher oil prices regardless of what the economy does—recession or expansion.
Oil exploration companies within this sector that find moderately good wells are going to command a premium price with this backdrop. They are the sweet place in this bull market.