Click here for thoughts on oil from a man aptly named Kevin Drum. (Kevin Kegger’s thoughts on the beer supply to follow next week.) Current demand for crude oil, he says, is about 80 million barrels per day . . . there is practically no spare producing capacity anywhere in the world . . . yet demand for oil increases by about 2 million barrels each year.

On February 16, I linked to Stephen Leeb’s book, which predicts $100-a-barrel oil in the not too distant future. The little stock I suggested that day has so far gone exactly nowhere, and I don’t know whether it ever will. Worse still has been the Canadian gas producer I have suggested here for years, symbol CSPLF. I am nothing if not patient. (OK, I’m as impatient as the next guy. I am nothing if not stubborn.) But I’m looking at others, also, more mainstream – for example, I’ve just bought some Anadarko (APC) – because even though I don’t know anything about oil anyone else doesn’t know (an important caveat), and even though the stock prices of the more prominent energy companies surely already reflect much of what people do know, I would still guess that oil and gas producers may do well in the years ahead.

We can ‘produce’ tremendous quantities of new energy in the U.S. over the next 10 or 20 years by more than doubling the fuel efficiency of our automotive fleet, by making our buildings more efficient, and so on. This is no doubt the single most important set of things we can do to enhance our future prosperity, health and security. But what about the Chinese? How much more fuel efficient can a bicycle get? As their economy, and the Indian economy, grow, won’t demand grow with it?

So in the few decades before we succeed in powering our lives the way they do in sci-fi movies (something will glow green, is all I know), you might do worse than having an oil stock or two in your portfolio.

But don’t bet too much. Markets have a way of confounding expectations. One smart friend of mine takes this view: ‘The Washington Monthly article has some facts wrong. Saudi spare capacity is greater than 1.5 million barrels a day. Spare capacity also exists in Kuwait, UAE, and elsewhere (Nigeria, Russia). Based on my experience, new wells can be completed quickly. They could increase capacity very rapidly and extensively in Saudi Arabia if they wanted. The price of oil is low compared to 1980. But without a cartel, the price would be $8 or less if easily available Saudi and Iraqi oil costing $2 came to market.’

Normally, of course, the time to buy something is when no one is thinking about it. Another reason to be wary. And still I think about all those bicycles.


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