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
Gas is quite a bit more expensive in Canada than the States. I’ve owned Halliburton stock before and I did very well with it. I looked into buying it again but it looked like it was higher now. The best time to buy oil related stocks in my opinion is when there is an oil controversy. If there is an oil spill or bad PR, that’s a good time to buy.
Yup, I did well with BP in the past. Some people may have ethical concerns about profiting from an environmental disaster, but the stock price would have gone up whether I jumped on or not. Better I earn the money and donate a portion of it to charity than some billionaire hedge fund manager 🙂
Love the line, “energy came from muscle and firewood”. Gives me a great mental image of someone on a bike powering a house.
As for oil and gas, they will both be used for quite a while as the first world countries refuse to adequately wean themselves of their dependency. It is really just a matter of what is cheaper at the time as to what we prefer. Here in the states everyone is riding the natural gas boom. Like you said, at some point this will have to change and a transition to other means of energy production will have to be found.
Shale gas is really taking off in the States.There are already over 120,000 natural gas vehicles operating on American roads. And with half of homes being heated and cooled with nat gas it’s sure to be a great place to invest for the next couple of decades.
Oil, the ultimate commodity. Freshwater, really should be, as it is a basic requirement for the existence of life, but alas we humans are not that intelligent, which will ultimately be our undoing, . Isn’t it a little ironic that companies over the past few years have been short on water to extract the oil… Also, most major war outcomes have been influenced by availability of oil and it’s by products, meaning those that had better access to it won… I own a few stocks in the oil and gas industry (e.g.. ENB, COS, VET), with additional in the oil and gas services industries (e.g.. E, MCR, WEQ, ZCL).- Cheers.
Good thing we have both an abundance of oil and fresh water 🙂 It’s just too bad we can’t get our products to market very efficiently and have to sell our oil at a discount to our US neighbor. Maybe things would be better if we had more pipelines 😕 I have COS too. Bought them when they were still an income trust COS.UN.