$300/Barrel Oil Is Coming - Barron's Interview

Includes: ECA, SU, USO
by: SA Eli Hoffmann

Weeden & Co. energy analyst Charles Maxwell says $300/barrel oil is on the way - and will hit us by 2015. In an interview with Barron's, Maxwell highlights oil's uniqueness:

When it begins to disappear, there really aren't any good substitutes, which there are for so many other commodities. It's that lack of substitutes that forces the pricing mechanism to balance supply and demand.

Before you scoff at the notion, note that Maxwell correctly predicted the recent oil spike (well, actually, he underestimated its magnitude) four years ago.

Key arguments:

  • Oil's alternatives - coal and nuclear energy - are not viable replacements, the former because we lack the technology to burn it cleanly, and the latter because political wrangling has held up its development. This lack makes the U.S. vulnerable.
  • Political instability will keep prices elevated and resource nationalism will continue to stop oil-rich nations from opening up their reserves.
  • New oil fields tend to be lower-yield and in more remote locations.
  • Record world economic expansion has been predicated on the use of oil as the primary energy source. The only thing that will ultimately slow that growth is higher prices.

Maxwell likes tar-sands stocks such as Suncor Energy (NYSE:SU) and EnCana (NYSE:ECA). Aside from that, new yet-undiscovered technologies will make a killing for those smart enough to recognize them early:

There are going to be so many new companies and so many new technologies that it boggles my mind at the thought of identifying all of them. There are going to be a lot of new industries coming in and wonderful opportunities in the stock market.


  • While not as extreme as Mr. Maxwell, Richard Shaw thinks long-term price trends make buying the dips a winning strategy.
  • Not suggesting this will happen, Bespoke ponders what would be if the 'oil bubble' burst at a magnitude similar to that of the dot-com bubble or the homebuilders bubble: "For oil to match the Nasdaq crash, it would get all the way down to $32.06 by February 1st, 2011. For it to match the homebuilder crash, oil would fall to $31.40 by June 27th, 2011."