In 2003 oil was $30/barrel but today in 2013, it’s about $95/barrel. There are many factors that determine the price of oil like inflation, supply bottle necks, conflicts in the middle east, global economic growth, etc.
Some people complain about the high price of oil today because it has tripled over the last decade. I guess it all depends on how you look at the price 🙂 Even with the high taxes we have for gasoline in BC, it still only costs about $1.25 for 1 liter of gas (0.26 US gallons.) By burning this gasoline in an efficient combustion engine it can generate the power to move my car 10 kilometer on the road (6.2 miles.)
But before oil was discovered people would move things around the old fashioned way; manual labor 🙂 So if we didn’t have any oil we could alternatively get 3 people to push my car 10 km instead. It would probably take them 6 to 7 hours total, including breaks in between because these guys are unionized 🙂 That’s the equivalent of roughly 20 man hours. If minimum wage is $10/hr then that’s equivalent to at least $200. And we haven’t factored in energy costs yet. 1 liter of gasoline contains about 8,200 calories. That’s equal to 15 Big Macs 😯 If you’re pushing a car for that long then you better be eating something 😕 And food, or fuel for people, costs money. Plus driving a car is a lot quicker than pushing it. And time = money. So after considering all these factors, $1.25 for a liter of gas at the pump is a bargain 😀
Most of the wealth and luxury in the world today would not be here if it wasn’t for oil and other hydrocarbons. Petroleum production and pumping oil out of the ground only started about 100 years ago. For over 99% of our human history people relied only on basic forms of energy like muscle and firewood. If folks from the medieval times could see how people today live they would be completely flabbergasted (゜o゜) Most of us are living like kings compared to them. But not even kings could travel from Canada to the Bahamas in just a few hours, or watch movies on a giant screen in an air conditioned theater, or have access to penicillin, or eat anything they want even if it’s not in season 😉 So if our ancestors could see us today, we wouldn’t look like kings at all. We would look like Gods!
We are truly lucky to have oil in our lives, but we can’t take it for granted. There will come a day when the rate of oil production will stop increasing. When that day comes oil will certainly be a lot more expensive than today. So as usual, the best plan to hedge ourselves financially is to own the means to produce the assets that the world needs.
Low risk investors can look at pipeline companies, such as Enbridge or TransCanada, which do relative well in recessions.
Medium risk stocks include large integrated oil companies like Suncor, Chevron, Royal Dutch Shell, etc.
Investors with a higher tolerance for risk can look at oil and gas servicing companies like Schlumberger, Calfrac, or Halliburton.
Disclaimer: I have shares in ENB, SU, CVX, HAL