Find out how to invest and protect your investments in this slippery sector.
During the oil crisis of the 1970s and the rapid rise of oil prices during the early part of the 21st century, concerns surrounding the use and availability of this non-renewable resource greatly increased in the minds of many. One theory that always seems to creep up when oil prices rise is the idea of peak oil, which is a hypothetical date at which the world’s crude oil production will peak. Every day after this would mean lower production levels and an ever decreasing supply.
Simply put, when the world’s oil producers combined can no longer increase their oil output, we will have reached peak oil. Oil will be increasingly difficult to find and extract because there will be less of it and fewer deposits to find.
Although the steady depletion of oil is a certainty if we assume oil is a finite resource, optimists don’t see peak oil through the doom-and-gloom perspective of some. Peak oil may be decades away, and all the hype in the meantime serves a purpose by spurring progress in setting up alternative energy sources. By the time peak oil arrives, it is hoped that alternative sources of energy will be in place.
While there are as many peak oil proponents as there are detractors, in this article we will look at how you can make money on this potential event.
Demand for oil has consistently risen globally. Should demand continue to rise when total output has reached its peak, basic economics tells us that oil prices will steadily rise with demand. And when production falls–which will occur when oil becomes harder and harder to find–oil prices will rise at a much greater rate. Oil exploration will become much more aggressive, and alternative oil sources–such as Canada’s oil sands–will be increasingly exploited to squeeze out every last drop of oil.
Alternative energy sources will become much more popular as countries are forced to move to a sustainable energy supply, and as fossil fuels simply become too expensive. The way we live our lives would dramatically change if oil-based energy becomes economically out of reach. For example, people will probably live closer to where they work, leaving municipalities strained in their attempts to provide adequate transit as well as maintain social services and infrastructure at a much higher cost.
When and if peak oil does arrive, it needn’t be all doom and gloom. It can be a major investment opportunity as there are areas in the market that will benefit. Some of these investment opportunities include:
As the amount of reserves oil companies hold starts to diminish, oil companies will need to increase oil exploration and drilling to replenish reserves–after all, they are in the business of selling oil. As oil producers increase spending on exploration, it is the oilfield services sector that will win by receiving more orders and seeing higher revenue. Oilfield services companies provide the tools and equipment required in the exploration of oil including drilling rigs, offshore rigs and transport equipment. Therefore, with a dramatic increase in drilling, oil field service companies are likely to be in demand, making them a hot investment.
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