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Stock Ideas Investors Daily Edge The Coming Revolution
Stock Ideas Investors Daily Edge The Coming Revolution 
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| Could oil hit $100 a barrel? Of course, many of us think that $100 oil is inevitable, but many top energy sector analysts who once thought it would take years for us to reach the $100 mark are now predicting that lofty price may be reached very, very soon. | |
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| The Coming Revolution |
| Wednesday, 28 May 2008 | ||||||||
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Memorial Day got off to a pleasant start yesterday. My wife Cecily and I were having brunch with our son at the local diner. Nick is a police detective. He usually talks about his latest cases and stupid criminals. But this time he was complaining about crazy prices. Ever since he got promoted from being a beat cop, he’s had to watch his spending more carefully. Detectives get a higher salary but much less overtime. He’s making 20 percent less than before. And like many people he’s blaming the high price of oil. He thinks oil is in a bubble and he is pointing the finger (no, not that one) at speculators. Nick isn’t alone. A lot of people feel the same way. Their argument goes something like this: “Crude has shot up 80 percent over the past year. Why? Demand hasn’t spiked. Supply hasn’t dropped. The cost of making oil hasn’t changed dramatically. There can be but one explanation. Speculators have poured billions into the market – causing prices to rise sharply. Fast money going into a hot market has created a bubble in the oil market. It is the X-factor. And it is making oil companies rich and consumers poor.” It’s a heck of a convincing argument – even when it’s spouted by a 26-year old know-it-all like my son. Even the big oil CEOs who testified in Congress last week admitted oil costs “only” around $55-65 to make. But can you call a market a bubble when: 1. There is no inventory buildup (like there was, for example, in the housing bubble)? 2. There is a clear structural tight supply in play? 3. Faltering production is unlikely to keep up with growing demand? These market fundamentals are pretty hard to ignore, yes? Can you call investing on such compelling fundamentals “speculation?” Whatever you wish to call the soaring price of oil, the question of the day is what can prick oil’s price momentum?
Well, if speculation is the X-factor, then technology is the Y-factor. In fact, I was talking about oil drilling technology in my last IDE article [link]. Many readers, including Joe, found the discussion useful. Joe said... I actually enjoyed Andrew’s article this morning. I found it quite informative. The general subject is fairly well known and covered, but especially enjoyed the specifics re Brazil and its deepwater rigs, and the list of who’s who. Please keep these types of informative commentaries coming... Have a nice day . . . Joe Well, thanks Joe. Deepwater rigs are destined to play a key role in contributing to future oil production. But I believe technology is going to play an even more important role on the demand side. Just look at cars. Despite all the talk about electric and hybrid cars, they comprise a tiny part of the total car population. Even for Toyota, the market leader, hybrids comprise less than 10 percent of total sales. Some market observers say that by 2030, more than half of the one billion vehicles on the road will be hybrid and electric cars. Green buildings are another example of where green technology can make a big difference. Believe it or not, buildings can be a net producer of energy. This is not some future fantasy, either. A huge building is now being completed in the Middle East that will create more energy than it uses. The technology is already here to do this. As these user trends gain popularity and as the technology behind them proves itself and improves, the rationale behind sky-high oil prices will become outdated. It’s a sea-change. We’re right at the beginning, but I have absolutely no doubt that it’s happening. There’s no quick remedy for high oil prices. But a revolution on the demand side is upon us. Good Trading, Andrew Gordon P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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