Everyone uses oil in some capacity every day. Whether it's the plastics around our homes, to our medicines we take, to the vehicles we drive, oil is a part of everyday life. Because of this constant need and use, oil has been called the most important substance on the planet.
When it comes to investing, it is no surprise that oil has traditionally been a sound investment. With the gold bubble coming down, and the market in constant flux, oil futures may be the most sure-fire long-term investment opportunity available. Looking at the future of the Earth, and the financial markets, you can see why the value of oil will go up over the long-term future, even if prices fluctuate from time to time.
Peak Oil
Peak Oil is a mathematical theory that the peak production of oil will occur, and production capability will decline. The theory predicted that the United States would peak around 1970, and the world would peak around 2010. The theory, proposed by Geoscientist M. King Hubbard in 1956, has been proven to be accurate in it's calculations. Production capability in the United States peaked in the early 1970s, with other nations decreasing over time.
Now, it is believed that the oil-rich nations such as Saudi Arabia and Iraq have met their peak productivity, and their supplies are in decline. With the majority of the world modernizing, the demand for oil has increased rapidly. China, India, Europe and the United States have been the largest users of petroleum over the past decade.
The limited nature of oil, combined with strong demand has seen oil prices double since 2000. This increase is expected to continue as oil reserves become fewer and demand continues to increase or become steady. Even green technologies use petroleum products in their design, creating a link between the two forms of energy.
Speculation
The speculation about events around the world have increased the prices of oil, seeing them come down slightly following the event. For a short-term investor, this speculation helps to drive the price up, allowing the investor to sell their holdings when they believe the price has peaked. For the long term investor, such speculative activities help drive up the bottom price for the goods and services.
In the long view, this increase in the bottom price means that the least amount an investor will obtain for their holdings is now higher, meaning profit even if the commodity drops. With a limited supply, high demand product such as oil, the product will increase in value over a period of a decade or longer.
Alternative Energy
Alternative energy sources still rely on petroleum products for their effectiveness. While there are many different green technology companies working to make plastics, medicines and energy from renewable resources, in the upstart and main progression of this field, petroleum is still going to be used and required. This means that even with leaps in alternative energy production, petroleum will still be needed for the foreseeable future.
The amount of renewable energy that would need to be produced for an oil-free world is staggering. This means that as fewer barrels of oil are produced, demand will still be high. Countries will still hunger for oil until they have the means to produce green alternatives. This combination of high-demand and low-supply works as an economists dream blueprint of the Supply Side Market theory.
Investment
Having oil in an investment portfolio is a good idea. For all the reasons listed above, the value of the holding is ensured to increase over a long-term period. The longer one can hold onto their investment, the more the value of a barrel of oil will increase. The price of oil has been around $85 for the last month, while it was around $40 a barrel in 2000. Oil has seen prices well over $100 a barrel during the past decade, but never dropping below $40 a barrel. This upward swing is expected to continue, meaning an investment today will increase for the investor.
With an uncertain market, one can attempt to peg the companies and products that will increase over time, or one can look at the empirical data on oil and make a solid investment as the backbone of their investment portfolio.
Shannon Webster - I have over a decade of experience working with government and financial companies. I enjoy politics, sociology, technology and ...
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