Fisher Investments on Energy

4

WHY WE’LL NEVER RUN DRY

Will the world run out of oil? If yes, when? Are we close to a peak in world oil production? Will stratospheric oil prices cause a global economic depression and subsequent collapse of society as we know it?

These are just a few questions raised while oil prices surged in recent years. With prices surpassing $145 per barrel (as of July 2008), questions about our oil supply sustainability will likely only intensify in coming years. Whether you believe the hype or not, the world’s ability to supply enough oil to meet forecasted demand has vast implications for investors, the oil industry, and global economic development.

Numerous theories abound. Investors could occupy themselves with countless books and industry reports on “peak oil” alone. Few have time or patience for that, but successful Energy investors still need at least a general understanding of peak oil theories and potential implications. Suggestions for further reading are provided at the end of this chapter.

THE WORLD WILL NEVER RUN OUT OF OIL

Will the world ever run out of oil? No. Never! While the physical amount of oil in the ground is indeed finite, the laws of supply and demand ensure the last barrel will never be consumed. The future of oil supply is simply a matter of economics and politics.

Trust Supply and Demand

Good-old Economics 101: the law of supply and demand. Once we get down to the last drops of oil, few will be able to afford them. With supply so scarce, prices will skyrocket ...