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What You Need to Know About the "Oil Crisis"
5 "oil crisis" myths debunked -- PLUS 3 U.S. businesses that will profit from high crude prices
As crude oil prices have soared to astronomical levels, the investing world has become awash in myths and misinformation about the causes and potential cures for the global oil crunch.
As usual, politics are at least partly to blame. Rather than hearing from the experts -- geologists and engineers -- we get an earful of political spin from Washington. This leaves investors like us, who want to make smart energy investments, with little factual information we can actually use.
That's why The Motley Fool put together this report. It shows you what you need know about the oil crisis and reveals three U.S. energy companies that have a great shot at profiting from high oil prices in the coming years.
Before we discuss these three businesses and what makes them attractive investment opportunities, let's briefly address the five most common myths about the oil crisis.
Myth No. 1 -- The Saudis can save us
Saudi Arabia has a lot of oil. In fact, it sits on a quarter of the world's entire supply, with close to 260 billion barrels of proven reserves. Yet doubts surround the boundless potential of Saudi oil.
Ever since Houston investment banker Matthew Simmons published Twilight in the Desert, the world has become increasingly skeptical about the Saudis' real producing power. A recent BusinessWeek piece concluded that "Saudi Arabia appears likely to fall well short of the daily production it has targeted in the near term."
Even the country's own officials admit that a ramp up in oil production to meet global demand could damage their existing wells, hurting future production capabilities. In fact, some experts are wondering if Saudi oil production has already peaked.
Wherever the truth lies, it seems less and less likely that the Saudis will be our knights in shining armor. Eventually, we will have to find other sources of energy.
Myth No. 2 -- The free markets will work out the oil crisis
While we believe in the power of free markets, it may be naive to assume that alternative energy will gain a foothold on its own. Oil is not only big business, it's engrained in our way of life. Alternative energy won't likely replace oil and gas any time soon without some sort of government assistance.
Billionaire oilman T. Boone Pickens, for example, argues for a switch to natural gas as our primary transportation fuel. He may be right, but pure economic incentives for such a massive undertaking are lacking -- at least without government support.
The same holds for solar, wind, biofuels, and other promising alternatives. As a result, they are a long way off from replacing oil -- and the wildly profitable companies that drill, refine, and market it -- as our go-to fuel source. Even Mr. Pickens's famous wind project in West Texas exists only in blueprints.
Point being, oil and natural gas will play a major role for many years to come. That, of course, means we'll need to do everything possible to encourage increased exploration and production.
Myth No. 3 -- Tapping the Strategic Petroleum Reserve (SPR) will increase oil supplies
This won't lower oil prices, either. The strategic reserve was set up as an emergency supply of crude -- not as a tool to manipulate prices. Holding slightly more than 700 million barrels of oil, it's only been tapped twice, by both Bush presidencies.
The first was in 1991, when President George H.W. Bush released 34 million barrels of oil from the SPR in advance of Operation Desert Storm. This move combined with quick victories in Iraq coincided with a dramatic one-day 33% decline in the price of oil. The second was in 2005, after Hurricane Katrina, when President George W. Bush authorized the release of oil from the SPR, resulting in a 3.7% drop in the price of oil.
Both moves in oil prices were short-lived. No wonder America consumes 20 million barrels of oil a day. If we used the SPR to control oil prices, the relief would be superficial at best and fleeting. Worse, it would quickly drain crucial oil stores, leaving the nation vulnerable in times of extreme emergency.
Myth No. 4 -- High oil prices are the work of "speculators"
Though it would be convenient to have a single culprit or conspiracy to blame for high oil prices, there is little evidence that anything but old-fashioned supply and demand are driving gas prices.
There are two dangerously diverging trends at work here: First, global demand is way up. China's and India's economies are surging, and their thirst for oil increases every day. Second, many of the world's largest oil fields are aging and aren't capable of producing at past levels.
The effect of speculators on crude prices is small change compared to the global megatrend of industrial growth. Soaring demand and declining supplies are the main drivers of high oil prices.
Myth No. 5 -- The world is simply running out of oil
Record-high oil prices have many wondering if we are running out of oil. In fact, there's plenty of oil left in the world -- close to 2 trillion barrels of black gold sitting in our own backyard right now.
That's right, the U.S. has the largest oil reserves of any country in the world.
Of course, there's a catch. The easy-to-reach crude was pumped out of our domestic wells long ago, meaning that the majority of oil in the U.S. is either encased in rock or trapped deep in existing wells -- requiring expensive, unconventional methods to retrieve it.
But the news isn't all bad. The technology to produce this hard-to-reach oil already exists. It was developed over 60 years ago but has gone largely unutilized because it's a profitable venture only when oil prices are above $30 a barrel.
Today, oil is worth almost 4 times that number
That's why American entrepreneurs are lining up to produce oil from local reserves and turn a profit.
But only a few have the know-how and capability to cash in on American oil today.
Motley Fool analysts have handpicked three companies that are profiting from American oil production and are positioned for future growth -- allowing you to use the oil crisis to your advantage with smart investments in U.S. energy companies with rock-solid businesses.
Because supply is not the problem, it's production. And even as the calls to develop new alternative fuels gain more and more momentum, gasoline and oil still remain the most economical ways to power America.
3 businesses that profit with American oil
Just ahead, you'll read about three different opportunities to profit from the growth of U.S. oil production.
Each company is involved in a different step of the process of U.S. oil production and is expected to see rapid growth over the next decade. So, please read on.
We hope you enjoy this report that will show you how you invest in what could be the "Next American Oil Boom."
A Motley Fool Income Investor Special Report
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