Investing Beyond $100 Oil: Part II
As discussed in Part I, the International Energy Agency is predicting that a severe oil supply crunch in the next five years is likely to drive oil prices to record levels. Of course, this is exactly why Gilpin thinks this is a great time to consider investing in oil and gas. “As the petroleum age reaches a tipping point, the United States, as the world’s largest importer, is in an unenviable position. Individual investors need not be similarly disadvantaged, however. The first step to protect your wealth is to see the prices of crude oil and energy stocks in their proper historical context. Ninety dollars per barrel is not a peak price; it is only a precursor of peak oil’s influence.” As supply constraints force oil prices to rise, projects that were once too expensive to pursue will become economically viable. Unconventional reserves, which are more costly to extract than conventional oil, hold vast production potential. “It doesn’t take a genius to see that the more we are forced to rely upon non-conventional oil, the higher the prices will have to be,” says Gilpin. However, all things being equal, increased production costs passed along to consumers in the form of higher prices does not increase profit margins for producers or oil and gas investors. But all things are not equal, according to Gilpin. Costs will increase, so prices will rise. But demand is expected to rise at a disproportionately higher rate than supply, causing prices to rise drastically. Energy investors understand this, and while they won’t profit from increases in production costs, they will benefit if rising demand sets off bidding wars. “We think crude oil will take out $100, and then continue higher from there. Sure, crude may decline in the short term, but the destination is clear: much higher prices. That may be bad news for the U.S. economy, but need not be bad news for you, assuming your money is in the right place,” said Gilpin. Where is the “right place” according to Gilpin? “On any pullbacks, smart investors should take every chance to position themselves in energy companies that possess a strong growth profile and the other requisites for turning undeveloped fields into profitable ventures.”Published Tuesday, December 11th, 2007 at 6:30 am and filed under Industry News.