A CASE FOR OIL INVESTMENT

This ongoing recession has caused a decrease in the demand and therefore a crash in the price of oil. With the drop in price, oil companies have curtailed exploration and production of oil which will cause a corresponding spike down the road. While continuing to draw down known reserves without replacing them is foolhardy.

This downturn has quietly masked the arrival of peak oil, without replacing reserves the world will no longer be able to keep up with consumption. Peak oil being the point at which 50% of global oil has been used. With world populations growing and industrializing, the oil we have left will get used a lot faster than the first half did.

As the economy starts to recover and even a modest increase in demand for oil ensues the price of oil will increase as fast as it dropped. The lack of exploration will mean there will be no way to simply turn on a valve and increase production. Cheap oil is and was a thing of the past going into this recession. Future oil production is going to get more expensive and this present temporary drop in demand and consequent drop in exploration will only make the price more volatile going forward. 

I don’t relate to the doomsday theorists that predict anarchy and chaos as the oil depletes. The warnings are out there and civilization is and will continue to pursue alternative solutions such as wind and solar. As the scarcity of oil drives the price up it will drive even more investment into new and innovative forms of energy. Even with millions of dollars being invested in alternatives we will be dependant on oil for years to come.

It looks to me like big oil companies are so acutely aware of the difficulty in finding more large pools of oil that they are entertaining the invitation to go back to a jurisdiction like Venezuela after being evicted from there only two years ago.

Now, while the oil price is depressed, seems to me to be a prudent time to make investments in oil companies with large oil reserves and clean balance sheets. If the world economy sinks further it may delay the whole process but I can’t see how it can stop it. 

This is of course just my view, for what it’s worth.

Trivia - A car uses 1.6 ounces of gas idling for one minute. Half an ounce is used to start the average automobile.