Energy Investing: Get on board big oil now, because it will go up this summer, guaranteed
By Adam Lass
Energy Investing: Get on board big oil now, because it will go up this summer, guaranteed
In this article
Over the last 37 years, we have increased the number of miles driven by 35% per decade.
Ffront month crude oil futures are above $60/barrel.
Right now we have two aircraft carrier groups in Iran's vicinity, with a third rumored to be on the way.
Let's take a minute to talk supply, demand and price, starting with demand.
In 1970, Americans drove their cars, pick-ups and motorcycles all sorts of places. They drove to work, the grocery store, the mall, the movies and Grandma's house. In doing so, they racked up some one trillion miles on the old odometer, and used about 133 billion gallons of gas in the process.
You know what that is? Small potatoes, because over the next 37 years, we have increased those miles driven some 35% per decade. We are currently draining 3.5 billion 55-gallon drums of finished fuel a year.
Energy Investing: Addicted to Gasoline
A decade ago, we paid $1.24 a gallon. Today, we are paying $2.42. By midsummer, in all probability we will be paying closer to $3.20/gallon. We will whine and we will moan, but we will pay.
Right now front-month crude oil futures are above $60/barrel. They will in all probability drop below that figure over the next few weeks -- but not by much.
And then something will happen. I don't know what, but I can make an educated guess: Iran provides the west with some 3 billion barrels of oil a day. And it very much wants to become a nuclear power.
Energy Investing: Tehran's glowing ambitions
How bad does it want it? It's putting a great big swirling atom on its new 50,000 Rial bill (worth about $5.40 in Tehran, or two gallons of gas in Washington, D.C.).
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Right now we have two aircraft carrier groups in its vicinity, with a third rumored to be on the way. The Bush administration swears eight ways from Friday that it has no plans to use them. Just sailing around, folks. Nothing to see. Go about your business please.
Energy Investing: The price always rises in the end
Maybe I'm wrong: maybe this whole Iranian thing will blow over. And maybe nothing will happen to the 2.1 million barrels that Venezuela pumps out to the world market. Or maybe another storm will hit the gulf.
I don't really know, and to be blunt I don't really care. I just know that “elastic demand” is a myth: we will buy pretty much no matter what happens. We have to.
And the price will rise. And the oil companies will continue to make more money than Croesus ever imagined. Which makes them a buy right now. A great big screaming “don't wait, don't try and time this, just buy shares.”
Or do try and time it, and buy CVX options, like WOW readers did. Just get on board, one way or another, before the spring lull is over.
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Related Resources
New Iranian Banknote: Iran's new glow in the dark currency. - The Jerusalem Post
IEAE Chief Still Worried: Iranian nuclear ambitions. - MSNBC
Vehicle Miles: We drive too darn much. - Bureau of Transportation Statistics