"So much for expensive oil."

That was the first thing I heard this morning after talking to a reader. Apparently, I wasn't the only one watching oil prices fall below $95 a barrel today.

The truth is that the optimists were out in full force this morning. And I'll admit, they had plenty of reasons to feel good. Several analysts felt OPEC would decide to increase production during their meeting on December 5th. On top of that news, Saudi Arabia reportedly hiked their output to nine million barrels per day. They're also expecting a drop in U.S. crude oil stockpiles, so even a decline in the Energy Information Agency's weekly report won't send oil prices soaring higher.

My reply caught my excited reader off guard, "Let me get this straight, you think $95 a barrel is cheap? Winter is right around the corner, the summer driving season has been over for months, yet here we are with oil at $95 a barrel. Do you realize what oil prices were like twelve months ago?"

He had no idea, and I didn't have the heart to tell him.

The reason was because if he felt comfortable that oil was trading over $90 a barrel, I wasn't going to remind him that oil cost about $55 a barrel this time last year. You see, my reader was still thinking in terms of the $100 price benchmark.

Since prices only rose to $99.29 last Wednesday...

Wait a minute.

$99.29 for a barrel of oil?

If I had mentioned this a year ago, I would have been laughed out of the room. So don't let the psychological benchmark of $100 oil fool you. Will prices break that mark? Absolutely.

I can't help but wonder what people will say when a barrel of oil costs over $150 next year? Perhaps they'll think it's still cheap under $200 a barrel.

While other analysts argue about falling dollars and nonexistent hurricanes, the fact is that the world's oil demand is growing too fast for production.

If you think demand is slowing, you can think again. The two largest private sector oil refiners in India, Reliance Industries and Essar Oil, announced their plans to create the world's largest oil refining hub in the world. Trust me, India an d China aren't going to slow down.

But here's the question my readers have been asking for months...

"What comes next?"

I know a vast majority of you don't need to be told about the peaking of global oil production. I'll save the doom and gloom for another day. I will, however, answer your question.

Over the next ten years, there's going to be an unprecedented amount of investment pouring into the development and production of unconventional oil and gas resources.

Now, I'll bet you're expecting me to go off about the future of Canadian oil sands. But as bullish as I am on the oil sands in Alberta, the fact is that oil production from offshore drilling is exploding, particularly in the deepwater sector.

The Offshore Drilling Boom

With the amount of water Saudi Arabia is pumping into their massive Ghawar oil field, I wouldn't be surprised if some people mistook it for the world's largest wishing well. If I'm ever nearby, I'll toss in a few pennies for luck.

In 1947, a well was drilled in 14 feet of water in the Gulf of Mexico. It was the first commercial offshore well. Sixty years later, billions of dollars are being invested in the offshore drilling industry.

And over the next five years, over $200 billion dollars is expected to be spent on offshore drilling projects, with more than $80 billion being spent on deepwater projects. Right now, deepwater production makes up roughly 15% of all offshore oil and gas production.

Over the next five years, however, over $100 billion is expected to be spent on deepwater projects.

For investors, the door is still wide open.

Investing in the Offshore Boom

Granted, you can hop on board some of the major players like Transocean Inc. And if you got in early enough, I'm sure you're smiling right now...

This company has made a pretty penny for its investors so far in 2007. But don't think Transocean Inc. is the only one out there. Personally, I would focus on some of the hot spots in the industry, specifically those drilling in the Gulf of Mexico, Brazil and Africa.

Later this week, I'm going to tell my readers where they can go if they're interested in taking advantage of these unconventional plays, so stay tuned.

Until next time,

Keith Kohl

www.energyandcapital.com

 

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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after read & seen mucha articles concern price barrells , & others systemes exploitations & raffined=?% for 2 000 000 barrels petrol = evry barrels contain nxt 200 liter for 0.82 mass volumiques =164 00,000/ after raffinned =for 0.70 =1400,000 waht,s benefit & spentthank you

You are SO right! Here in the U.K we pay £5.50 ($11) a gallon! MOST cars here are required to exceed 40mpg and if they do we pay less road tax. But nobody complains! Most people are spending at least 15% of their yearly wage on the cost of having and keeping their car.
Still nobody complains. We just keep paying!
As prices rise to new levels for a barrel, it doesn't matter where you live in the world: we keep on paying!
Why?
Because a yet there is so much political gain in placating the driver. So much gain in subsidising the producers ( another european thing), and so much antipathy towards anyone who suggests alternatives!
Whatever happened to Honda's solar-car?
It wasn't developed with the backing of Texaco etc! That's what happened.
But these new technologies will soon become mainstream.
Maybe not this year, but within a decade I'm thinking that cars that are hydrogen powered, solar powered, even nuclear powered will be bought at HUGE premiums because the prohibitive cost of petrol will make them cheaper in the long run.
Of course if we don't develop these new cars, peak oil will occur even sooner.
Keep up the good work!
Mat Hayes

I wouldn't be surprised if in 12 months you're saying that you still think that oil is cheap when it is under $200 a cup.

Keith, you never seem to mention the fact that the single largest cause of crude oil increases is excessive speculation, the same thing that Amaranth did to the natural gas market last year. And dont forget to mention the fact that the "closetheenronloophole" act could hopefully end all that.

I appreciate that this article was not 25 pages long. Unless all you do at work is sit and read things about investing (which obviously some do), I'm not sure how you would ever find time to read some of them. Thanks, Keith, for giving us normal folks something we can actually read and digest.

Is your "reader" covered by a good insurance plan? He'll need it to get his head out of his...... If it weren't for consumption cutbacks, almost no hurricanes, mild Oct. Nov. weather oil would be near $150 by now. Its only by the grace of "insert religous reference here", that it isn't.