True North_

Expect Oil to Approach $100/bbl Again By Summer

Sorry, an incomplete sentence in my last paragraph (see the part in all caps).

As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)) ARE A RISKY BET. Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge.

Expect Oil to Approach $100/bbl Again By Summer

Demand destruction was obvious in the spring of 2008 - when the price of oil was being driven largely by speculation, rather than fundamentals, and many of those speculators were then trumpeting the imminence of $200 oil. Oil & gas price spikes in the current environment will both undercut economic recovery and feed back into further demand destruction. No commodity price can be sustained for any length of time if its price runs significantly ahead of demand. That applies also to oil. The larger OPEC members understand this, and would prefer a comfortable equilibrium to be achieved - where oil is affordable (so it dampens down enthusiasm for development of more expensive alternative energy sources), but for them profitable. The Saudis have set a target of $70 - $75 oil (although for them, $50 oil is probably fine). In the summer of 2008, as oil headed to $140+/bbl, the Saudis noted that if anyone had needed more oil, they still could supply it - but no one actually wanted it.

The longer term problem is made more complex by the curtailment of investment in oil infrastructure. The cuts in exploration and development budgets have been legion. That does potentially set the stage for price shocks down the road: but only after OPEC's excess production capacity is absorbed. How long that takes will depend a lot on the macro economic environment and I leave that to others to guess at. In the meantime, I expect oil prices will be highly volatile; I wouldn't be counting on prices north of $100 anytime soon (unless the US dollar collapses - in which case, again, the price increase will feed into demand destruction in the largest oil consuming nation).

As a long term investment, well capitalized oil producers and the major integrated companies are likely a safe bet. Smaller exploration and development companies, in this environment (where access to capital is difficult and the ability to survive the price volatility - see the example of Oilexco (TSE listed)). Some articles published on Seeking Alpha have suggested that, as a hedge against the possible (likely?) devaluation of the US dollar, US investors look to acquire inter-listed Canadian (or other foreign) oil companies. An interesting angle - playing for higher oil prices, plus something of a currency hedge.

(Long CNQ, some Canroys, Talisman).