Monday, January 15, 2007

Oil!! I've struck Oil!!

Well, not really. Even if I had, I probably wouldn't know what to do with it or how to manage it.

But I have learned a few facts over the last several weeks that are beginning to congeal inside my brain (old age does that to a person - makes their brain congeal). And it leads me to a prediction:

There will be an oil crisis of some unknown magnitude and the result will be higher gas prices!

Now, I know, you're thinking I've probably outdone Nostradamus. Or you're thinking that a 3 year old could make that prediction. Regardless, let me state some of the reasons based on unrelated obscure facts that I believe this to be true.

First, in my reading about Saudi Arabia last week (for absolutely no reason except to procrastinate and avoid reading a book I was supposed to read), I learned that oil reserves are stated by each OPEC country without any validation. There are a lot of people who believe that Saudi Arabia has been overstating their reserves for a long time. The amount of oil they can pump under OPEC guidelines is controled by the amount of reserves. By overating their reserves, they get to pump more than other countries.

Second obscure fact is that Iran and Venezeula are beginng to work together. These two countries share a common hatred for the US. I'm not sure what percentage of oil revenues these two countries have, but I'm sure it's a lot. Maybe next time I procrastinate, I will do some research.

Third obscure fact is that China and India are growing the number of automobiles (and demand for gasoline) tremendously.

Fourth obscure fact is that the oil companies have no incentive to search for new oil. This fact is a little hard to derive, so let me explain the basis of it. Last year, when gas prices shot up, oil companies made huge profits. The american people in general and congress was furious. Ignore the validity of the furiousness for now, just pay attention to the discussion at hand. Oil executives were hauled in front of congress and asked to testify. I am convinced that any oil company that makes profits over a certain threshold will be treated this way. That serves as a strong disincentive to make profits that large.

Also contributing to this fact is some information I learned in my Fincance class. Basically, the stock price of any company is the public's opinion of how much that company will make in the future. Right now, oil stocks are still high so the public in general believes that these companies will continue to make more profits. Doing additional research, looking for new oil reserves, all of this increases expenses and doesn't provide (in the short term) and additional profits.

This leads me to believe that there will be no new oil.

If the demand for oil is increasing and the supply is questionable, what is the result?? Yes, as the student on the back row said, prices increase. But what's a body to do? How can we stop it?

I'm convinced that the way to manage this issue is NOT through politics. Call me skeptical, but I don't believe there is a polician alive who will touch this issue. It's much to vague and the results are too far off. We have taught our politicians well, they look to the next election (consider social security for example - but that's another blog).

This does not mean that we are doomed and I personally don't believe that we will run out of oil. It just means that times will get harder as oil gets more expensive.

But, while we can't get politicians to change, we can change things. We can decide to work for our own good and let the politicians (or anyone) deal with everyone else. This sounds very self-centered and it is. If you think you can help others, you should. And I will help others as much as I can, but I am solely responsible for helping myself. No one else will do it for me.

I can decide to move towards more fuel efficiency. No, I won't go buy a Prius tomorrow, but the next time I look for a car, gas mileage will be an important factor (it was last time). Gas is the #2 cost associated with car ownership based on my figures. #1 is the purchase price of the vehicle itself (gas cost is very close to #1).

I can also decide to invest in companies that make energy. Some of these are like the dotcom's of days gone by. Maybe one of these companies will take off. Other are like the big oil companies, they are bound to keep growing.

So, what do you think? Do you agree with my Nostradamus act, that gas prices will go up? Do you think we should all march on Washington (for heaven's sake don't drive!) and demand congress do something? Where do we go from here?

1 comment:

David said...

I hope we can finally start getting the kinks out of ethanol soon. If we could develop a cheap and widely accepted corn based fuel we'd be able to lower transportation costs while creating jobs here in America.