Troubling Trends in Crude Oil Prices Create New Oppurtunities

Americans today have almost unrestricted access to cheap oil and energy, but the steadily increasing price of crude oil puts this access and the American way of life under stress. The average American today enjoys a standard of living that is higher than that in any country in the world or at any other time in history. One can wake up in the morning to a warm house even during the harshest depths of winter, drive an hour to work every day and fly to visit a relative halfway across the country, all with little thought about how these feats are accomplished. They are able to live in this blissful unawareness thanks to the vast infrastructure which supports their unceasing and ever growing hunger for more energy. Cheap energy is at the center of the modern American lifestyle, and when it is threatened, society shakes and fortunes can be made or lost. For my first investigation into the energy industry, I decided to investigate crude oil, its pricing history and projected future, and its impact on the national economy.


Upon examination of the graph of crude oil prices since the 1980’s provided by the U.S. Energy Information Administration, I noticed several trends. After a spike in prices in the early eighties, the price per barrel of crude oil remained relatively constant between twenty and thirty inflation adjusted dollars for much of the next decade. After hitting a low in Q1 1999, however, prices have been rising more steadily and steeply than for any time except during the price spike in the eighties. Even ignoring the massive price hike in the summer of 2008, the cost per barrel has been climbing dramatically for a decade. The price is projected to continue its increase, albeit at a slower pace, through 2011. Obviously, this trend cannot continue indefinitely. Already the higher price of everything from filling up at the gas station to the price of bread has placed increased pressure on every level of American society. What then, does the future hold?


For American society to continue to function at its current level, it must be assumed that there is some form of cheap and readily available energy. Thus there are only really two conceivable possibilities for the semi-short term (ten-thirty years) that I can see. The price of crude oil will have to either stabilize or drop, or alternative methods of energy production will need to be brought from the periphery to the forefront. Any company that manages to place themselves on the forefront of whichever movement proves successful stands to reap massive rewards. The American Petroleum Institute (API) states that energy production accounts for 7.5% of the American economy. With what looks to be an inevitable shift on the horizon, one way or another, my focus over the next few weeks on this blog will be to discover the business opportunities and challenges created by this shifting market, identify the most likely scenarios and how an investor might capitalize on them.


Jason Ganz