Peak Oil

I am sure that everybody has realized the changes taking place in the price of oil. At least everybody probably sees that indirectly through gas prices. Unfortunately, the trend of higher priced petroleum based products is not likely to end any time soon.

The term "Peak Oil" refers to a peak in oil production. The US peaked in its oil production in the 1970's. Almost the whole world has, without a doubt, peaked in their production already. Their are only a few places in the world where production has not peaked or is not known to have peaked. I could list some of these places, but basically think of places where the US military is very active, and there you will find oil.

The global production of oil is expected to peak by 2010. The increasing production phase of oil production follows a bell curve in returns basically. The oil is easy to get. However, the declining phase is often dramatic and sharp rather than a steady bell curve descent. The remaining oil is hard to get and takes new technology and more energy to extract. While this will hurt stock markets in general, I believe that there is and will be a window of opportunity for investment in energy related companies, both conventional and alternative.

As oil prices continue to rise, those companies that can relatively efficiently extract oil or produce other energy will be rewarded, and their earnings and share prices will rise. Stephen Leeb has a couple good books on the subject of oil and investing. The takeaway message for individual investors is that in past inflationary times, when oil was rising, gold and oil service/production related stocks have tended to fare very well while the markets overall have done poorly.

Stephen Leeb references a couple studies published in Science that indicate that wind energy may be the most realistic, healthy, and cost effective alternative energy. Mark Jacobson is the author for anyone interested in further pursuing some of the research.

Pete