Baltimore, MD--The reality of peak oil will set in over the next few years. But once the world realizes the serious effects it'll have, the real panic will start.
The first sentence from the IEA's latest oil market report is sobering:
"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012."
Our world is digging itself into a serious hole. Consumption levels are growing faster than anticipated. Production levels are rapidly declining. Oil reached record prices over $78 a barrel during the summer of 2006.
But we had a good excuse for that, right?
Everything was still in disarray from the catastrophic effects of Katrina and Rita. The market became extremely tight. So we accepted the higher energy prices. Things would get better after we repaired the damage, wouldn't they?
Almost year after those record prices, oil is marching back up. Today, prices pushed over $73.50 a barrel. No major hurricanes or disruptions to blame anymore . . . not yet, at least.
And day after day, the reality of peak oil is setting in. My readers are well aware that U.S. oil production is dying. Even the North Sea is depleting more than expected, with production falling to 2.8 million barrels per day.
But reduced production isn't the worst part of peak oil. Looking around, you can see governments are starting to get worried.
The Panic to Control Oil
The race is on.
When it comes to controlling the oil markets, it's all about who's got the reserves. And I'm not surprised to see governments grabbing all the oil they can.
After all, it's a logical decision. It puts them in a better position to exploit oil markets and prices. This leads to higher revenues.
Consider that 90% of the world's oil reserves are owned by nationalized oil companies.
I'll get into what that means for us in a minute.
Nationalizing resources, however, isn't always the best thing for a country.
Take Hugo Chavez's latest ousting of foreign oil companies from Venezuela. His last words to the departing oil companies was, "They won't be missed." That may not be the case. The Venezuelan oil companies don't have too much experience with the heavy oil from the Orinoco basin.
A country fighting over its resources is one thing. Fighting for unknown oil reserves in unexplored areas is different. Things are starting to heat up as several countries have begun pushing their rights over the Arctic Circle. Experts believe the Arctic could have over a quarter of the world's unknown oil reserves.
A while back, I mentioned how Russia is aggressively going after the oil and gas reserves in the Arctic seabed. In one bold move, it suddenly claimed 400,000 square miles in the region. Now, Russia is seeking to develop the property for oil and gas targets.
Some countries, however, wouldn't go down without a fight. Canada has increased its military activity in parts of the Northwest Passage. It is spending up to $30 billion on new patrol ships to "defend their sovereignty over the Arctic." The question is, how far are they willing to go for oil?
Russia and Canada have made their intentions clear: They want the rich natural resources the Arctic region can offer, no matter who is in the way.
Our Opportunity to Profit
Things aren't as bleak as they seem for investors like us. The IEA report suggests that there will be a massive amount of cash returns for both oil companies and investors. It makes sense.
And we stand to earn substantial gains from the future oil market. The only question is how to approach the matter. Getting into some of the giant oil companies with massive market capitalization is not the way. They're just too big.
You can get a much better return from the small to mid-cap companies out there. I know some of our readers have gained 355% playing just one of those oil arixj. And the beauty is that there are a lot of those large returns out there. Just make sure you're in the right place at the right time. If you're interested, you can find out more here.
Until next time,