Crude Oil – The Next AAPL?

Some things you may or may not know about oil, that makes some people think it’s going to $200 before $50.

  • 1 barrel oil for under $100 will produce the amount of labor equivalent to 12 men working all year. That’s 2,000 hours of wages for every dollar.
  • We currently pay about $6 for a gallon of water and $50 for a gallon of Starbucks coffee.
  • Gasoline – a derivative of oil is used in everything from cars, to trucks, to planes, to trains to ships.
  • 98% of all transportation energy comes from oil
  • The average car is manufactured with the use of at least 25 barrels of oil
  • The average computer – consumes 10x its weight in fossil fuels. The microchip – 630x weight.
  • Every calorie eaten in the U.S. requires 10 calories of hydrocarbon energy.
  • Oil liquids create the foundation for just about every product from cosmetics to clothes to rubber.

The Numbers: Supply and Demand…

  • There are over 6.4 billion people on the planet and that continues to increase. Most are well fed and their demand for fuel and products are increasing.
  • 20-35 billion barrels a year in global demand for fossil fuels.
  • 80 million barrels a day now needed worldwide to sustain growth. By 2030 this number will grow to 120. In other words, 200 million barrels will be needed to cover that demand as well as replenish depleting supply form current wells.
  • in 1970 U.S. production peaked at 10.5 million barrels a day – oil prices went through roof – as oil wells were scoured the nation over. 10 years later at 4x the capacity a mere 6.5 mil barrels were being produced daily.
  • Venezuela was, at one point, the largest exporter in the world, as was the U.S. until the 1950s.
  • The last 3 major oil discoveries were in Alaska, Siberia and the North Sea in 1967, 1968 and 1969, respectively.
  • Saudi Arabia, the world’s current largest producer, will need to produce 20-30 million barrels a day. They currently run at 12 million. If production has peaked in Saudi Arabia, then the world has peaked. Gawar, the largest oil well in the nation is now using water to push the oil out to the top. At some point it is no longer economical to do so and production ceases.
  • No one is exactly sure of how much oil the politically-run Middle Eastern countries actually have. When demand for oil rose in the 1970s many of these countries announced an increase of 50% of supply overnight. Nevertheless, as 9 million barrels continue to be produced daily the numbers of supply over the last 30 years hasn’t changed.
  • In 1970s major oil users were Europe, the U.S., the Former Soviet Union, Canada and Japan. Today everyone, including China, India, Africa, South America and the Middle East use oil.
  • Suburbia may suffer as their model of far commuting are based on cheap transportation and fuel.

The Critics for Alternative Energies

  • Hydrogen is 20-30 years out.
  • To replace today’s fuel usage you would need 10,000 of largest nuclear power plants.
  • Ethanol and Bio fuels would supply but a fraction of our needs compared to oil.
  • Wind is a less viable energy as it offers little wattage.
  • Sunlight is 10,000 times more powerful and plentiful than fossil fuels. However, we lack the knowledge of efficient usage and it runs heavy initial costs and maintenance.

The Future

Now of course there are doom and gloom theorists who see the world entering a decade of depression from the oil crisis. As capitalists however we know that anything of the sort will be short-term. It is not to be unaware of however that the consequences of not having acted sooner are enormous and the implications thereof do seem to be staggering.

The market will work its way out. At some point it becomes less important to use as much fuel and demand falls. Similarly as the price rises the incentive becomes greater for explorations and drilling – including places where the profits until now have not been sufficient. The demand and eagerness for alternative energies will rise exponentially, and relative to fuel costs home-based energy solutions will become more mainstream.

The price of oil may indeed need to rise 3 or 4 times before all that happens, but when it does chances are that we will have the supply that we won’t need.

Regardless of what your opinion or what you may have read… The Age of Easy Oil is Over.

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