Another interesting article in the Vancouver Sun this weekend on Oil.
Just how important is oil to us? Let's start with this. "100% of ship and air transport relies on it. It handles most of our land transport. Auto's have alternatives but big trucks, trains etc? Without oil there is no petrochemical industry. Agriculture, manufacturing, building materials, the clothes we wear, the foot we eat and the medicines we take depend on oil."
You should read it all below as it has major implications for all of us and sooner than we think. In short:
We have just about consumed 50% of the worlds oil reserves of 1.2Trillion barrels. Of which 25% are estimated to be overblown. Consumption is at 30 billion barrels a year. 25% of the total reserves has been consumed in the past 25 years. By 2011/2012 demand is predicted to outstrip supply. That will great short falls and $147/barrel will look cheap. At today's consumption, never mind allowing for the growth in consumption by China and India, reserves are expected to be depleted in 39 years. 80% of the worlds oil reserves are held by non-true free & democratic governed countries and/or oligarchies.
Of interest at $147/barrel oil costs about $0.22/cup - less than a Tim Horton's coffee.
New finds? Brazil expected to have 15 to 30 billion barrels.. Half a year of supply? The wells are in very deep water and unproven. High Arctic? Estimated at 90 billion but not proven. In the decades drilling has been done they have not produced anything but moderate amounts of natural gas. All the really big oil fields have been discovered.
Tar sands? A big reserve but painfully slow to get out and to do so uses a huge amount of energy and natural gas. After 30 years of heavy investment the tar sands only flow 1.4 to 1.7million barrels a day. Far short of the 50 million that the non-OPEC countries produce. However this will probably make it good for future Canadian generations.
So should we horde it? I think so but then again I think Uncle Sam would be more than willing to to blast us to bits or overtake use to make us part of them so they can squander what we have remaining instead of changing their (and our) dreadful ways of excessive consumption (IMHO).
What's it mean today? While the economic turmoil we are currently in has the price of oil surprisingly lower, we will only be in this slow down for a couple years at the worst in Canada. The US may be a year and a bit behind us to recover. But when the world recovers and oil is in short supply we can see a real pressure on prices (probably to start in 12 months or so) that will result in just another push on inflation pressures. That means higher rates.
Tip of the Year: The best place to be in high inflationary times is Real Estate. Google the concept and you will find that 100% of economists and experts will say that. Bonds, stocks, cash and even gold do not hold the same level of protection against inflation. Inflation pressures will be the next driver of price appreciation when we come of the this cycle in 3 to 5 years. The next couple of months for sure and maybe the next year if you are lucky will provide a good buying opportunity. As I've posted many times, prices have quickly moved to equate close to rent costs which gives some bottom support to prices in the long run. On that note, always buy for the long run: 5-10 year time frame.
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