The Future is Bright: Oil Investments Are Here to Stay
byon 07-06-2011 at 02:22 PM (86 Views)
We are crazy about oil, and think everyone should be too. If you follow our blog, you know that we think oil is going to stick around for a long time to come, and believe it or not, others feel the exact same way. Thinking of keeping in the oil investment business for awhile? How about 50 years?
1. Geopolitical turmoil
The instability of many oil-producing regions keeps the market on edge. With the imminent withdrawal of U.S. troops from Iraq in December, even more instability could be around the corner. Iran is working to influence the area, and Saudi Arabia and others are becoming nervous. Some reports indicate that Saudi Arabia has been negotiating with other Muslim countries to create an informal alliance against Iran.
Any military conflict among large oil powers not only hurts the immediate production of oil, it also hurts the long-term supply, as my Foolish colleague Dan Dzombak shows. Many times these countries never return to their former production levels.
And there’s plenty of turmoil besides that of the Mideast, with major producers such as Venezuela and Russia struggling with their own instabilities. Russia has taken steps againstRoyal Dutch Shell and BP (NYSE: BP ) in the past, and Venezuela offers risk to investors in Harvest Natural Resources (NYSE: HNR ) , among others. All this puts consistently available supply in some doubt (See Point 2.)
2. Global supply and demand
The U.S. and Europe continue to use prodigious quantities of oil — way more than they actually produce. And many countries across Asia and Africa desire a Western lifestyle. Among them, China and India are growing rapidly, and that requires lots of energy. That incremental demand is putting serious pressure on oil prices. As The Economist notes, oil production has struggled to keep up with demand in the last decade. In fact, in 2010, for the first year ever, oil consumption exceeded production, eating into inventories.
The U.S. consumes about 25% of the world’s oil production, while China is the second largest consumer, using less than half what America does. But the numbers are much more striking on a per-capita basis. The U.S. uses 12 times as much oil per capita, meaning that demand for that Western lifestyle in China will support oil prices.[/QUOTE]
Find charts and additional points here: [url]http://turnkeyoil.com/2011/07/06/the-future-is-bright-oil-investments-are-here-to-stay/[/url]