>Expensive Oil Days Are Numbered

>With oil flirting with $140 per barrel there are a lot of people worried….not to mention a little ticked. It might surprise you to know that some of those who are the most upset are oil executives and oil producing nations. Why? When oil is at $50 a barrel there is little incentive to spend money to develop new sources of drilling or to produce viable alternative fuels – there is little real competition from alternative fuels and thus the oil industry is happy to make a little less money in the short term if it means they can continue selling oil in the long run. However, at $140 per barrel there is a HUGE incentive to find other fuels or to drill for new oil or to find oil in places no one ever thought of. The high price of oil gives the oil companies and oil producing nations huge profits in the short term, but incentivices (have no idea how to spell that word) competition which will in the long run make them (oil companies) obsolete. They dislike $140 oil as much as you do.

Necessity is the mother of all invention, but big profits also drive people to innovate – both forces are now combining and new ideas are being thought up of everyday that could knock oil off its perch in the long run. A few examples?

A few weeks ago I posted a story about the Bakken Formation – it is in the US and could have 200 billion barrels of oil – up till now it was expensive to drill for it, now their is enough money in producing oil that the investment in new technology can be justified and the drilling for that oil is under way.

It also may surprise you to know that in the Rocky Mountains we have 3 (Three) times the amount of oil than all of Saudi Arabia…we don’t yet have the will to drill for it. We also have tons of oil off of our coast which we won’t drill for, yet one of the most “green” countries in the world – Norway – is the 10th largest producer of oil…..they drill off-shore.

Aside from drilling for oil where can we can we get oil? Bugs……yep, you heard that right, this link will take you to a story about some silicon valley scientists who have genetically modified bugs to excrete oil – after eating agricultural waste. Hmmm, bugs that turn waste into oil that we can put in our cars……never would have occured to me (and this idea would never see the light of day in a communist regime). Will bugs be the future of oil? I have no idea. The point is that there will be a future fuel that will power our lives.

Last year a scientist figured out that he could burn water by shooting radio waves through……who’d have thought.

A car company out of Japan, Genepax is getting set to produce a car that runs on………..Water. Here is a link..

Our energy crisis will not be over soon, but it will in all likelihood lead to more oil (an consequence unintended by environmentalists who desire high oil prices) and more alternatives that no one ever dreamed of.

Finally, who’s to say that car companies won’t find a way to increase Miles-Per-Gallon substantially? What if we could get twice the mileage as we do now? That would drop our real price per gallon in half, an affordable price for most people.

Will Oil hit $200 per barrel? Who knows, if it does it will be the beginning of the end and it will not last.

Now there is one caveat – Oil could reach $200 a barrel even with massive supply additions if the US Government doesn’t watch its “dollar” policy. High oil prices are not simply a function of production – they are a function of the government pushing a soft-dollar policy.

Scott Dauenhauer, CFP, MSFP, AIF
949-916-6238
www.meridianwealth.com

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