Common Sense on Oil and the Price of Gasoline

If you have filled your car with gas lately you know gas is on the rise. I certainly do as my new car bought last year requires premium gas...ouch! However whenever I fill up I am actually pleased gas is on the rise as I own oil stocks. In fact the gains and dividends I gain from my holdings more than offset increases in the cost of fueling my automobile.

In this posting I am going to discuss some things I know about oil from many years of investing in oil stocks and research about the oil industry. The comments below may not fit your political sensibilities, but facts or facts and frankly I am more interested in making money from foolishness and laughing all the way to the bank as they say. At the end of this posting I will list some stocks you can buy to make some money too.

We need to accept the fact gasoline will never be "cheap" again. As the world develops and the demand for oil increases any spare oil capacity in easy to get oil is over. However if you compare the price of oil to the inflation adjusted price of oil it is actually still rather cheap.

We are told that we are at "peak oil" or that we are now at the point we can not find enough anymore to fill the needs of a world needing energy. This is frankly untrue. We might be at what could be called peak oil at the current cost to produce it, but here is a fact we got more than enough oil to fill the world's needs for generations to come. Do not let anyone tell you otherwise. There are billions of barrels left in Saudi Arabia, billions of barrels left in Russia, and believe it or not billions left in the USA. Most people do not know that we get more imported oil in the USA from Canada that anywhere else. Canada has maybe the largest supply of oil anywhere in the world. Also if there is demand enough for oil and the money to buy it we can increase supply as needed.

Now much of the easy oil has been found and lots of it has been extracted. However as the price per barrel has gone up the higher cost to get oil has become economical to go get. For instance, the most recent big find was right here in the USA in Montana and the Dakotas. We are already getting that oil out and as we look we are finding there is more there than we expected. At least 4 billion barrels there and likely more. Canada is another example where as the price went up the oil sands areas in Alberta became profitable to get out as well.

With oil trading around $100 per barrel you will see many other places begin to "find" oil as well. Brazil only recently found a huge reservoir in the Atlantic off their coast and they have been signing up deep water drillers to go get the oil. Note that lots of this oil to be discovered needs the serious professionals to find and extract. The major oil companies have the skill and know how and where they are not used, Russia for instance, oil production is declining. Not because of lack of oil in the ground, but from the lack of using the skilled people.

The USA has lots of oil offshore in the Gulf of Mexico, off the coast of California, much in Alaska, likely some off the east coast of the United States, and believe it or not in the shale rocks of the mountain west. Several years ago some smart people figured out that high pressure water and chemicals forced deep in the ground cracked open oil and gas bearing rocks and allowed the oil and gas to escape to be extracted. We have discovered since then we are literally floating on an ocean of natural gas here in the USA. Just a decade or so ago no one knew that. We actually EXPORT more gas than we import, due to this fact. If not for political considerations we would be extracting even more of this gas and oil and lessen our dependence of energy needs on outside the USA. Here is where the foolishness comes in. Since the current administration has placed much of the Gulf and coastal waters off limits to exploration as well as much of the mountain west off limits , we will become more dependent on outside sources for years to come. The silliness over the recent BP spill has subsided and like it or not the fishing there this year has been about the best ever. US drillers are the best and spillage is few and far between, so why we allow people in other parts of the world who are less environmentally aware drill and not our skilled people is plainly dumb.

Frankly instead of condemning the people who do the hard work of finding and producing our oil we should be praising them for these efforts that makes our life so much better. Like it or not renewable energy is not going to replace our current energy needs. This is just a fantasy and the costs are too high. Besides we have plenty of oil and gas, which is the most effective energy we have, so why not use it.

Most people do not know that natural leakage worldwide from oil seeping out of the ocean floor is many times the recent BP oil spill putting some common sense to the lie that no oil is spilled unless we drill it out. Oil, like it or not, is a natural part of the earth. Contrary to popular belief, no one really knows if it originates from decay of dead animals (fossil fuel), or occurs from forces deep in the earth where pressures from the super heated core force it to seep to the surface. Either way it is not something evil or bad, it is something we use, just like diamonds, silver, gold, copper, and many other things mankind has discovered that make life easier here on earth. Imagine a world without oil, which not only powers vehicles, but keeps us warm. make medicines, plastics, over 6000 items from this amazing naturally occurring substance. In fact less than half of every barrel used is for gasoline.

We produce about 85 million barrels worldwide daily and consume a little less than that. So when there is just a little of interruption in supply, the laws of supply and demand kick in and you get instant increases in price. Hence the increases with the recent problems in Libya, where only about one million barrels is taken offline. But make no mistake if there is long term increased demand for oil there will be supply if we allow the producers to go get it.

How can your prosper from oil and the silliness regarding supply.

ERF, Enerplus Corporation...just under 7% monthly dividend. This is my personal largest holding in oil stocks. They have oil and gas wells in many places on the North American continent, but mainly in Canada. Not only do I like their diverse holdings, I like the management and the fact the company is in Canada away from any of the current silliness in the current US administration. The stock price is not overly high, and a dividend paid monthly is just plain nice in your account. Note that any Canadian stock has a 15% withholding from your paid dividend, but you can recoup it when you claim taxes in the USA.

DO..Diamond Offshore Drilling...My personal second largest holding. DO pays about a 5% dividend and does business worldwide in deep water oil drilling. I like the fact that few companies do this and DO has lots of experience. Note that the dividend is paid 12.5 cents regular divy and .75 cents special divy.for a quarterly total of .875 cents.

PGH..Pengrowth pays a monthly dividend of just under 7% and is one of the former oil trusts in Canada. Owning this stock is almost like owning an oil well. PGH does have some gas holdings, but is 70% plus an oil producer. I own shares of this stock as well.

COSWF...When it comes to a pure oil play this is as close as it gets. Canadian Oil Sands pays just under a 3% dividend and is the major player in the Canadian oil sands area. They have at least a 40 years supply in their current holdings at current extraction. If you are looking a long term almost guaranteed payout this is it.

CVE..Cevonus Energy...I mentioned this one in another posting and will not reproduce that only to say the price is up nicely since I suggested it and I still like it for a long term holding.

There are other good companies out there which are solid buys and good stock holdings, but you will notice I like Canadian oil stocks where politics does not interfere in my investing and stocks that pay dividends. Now go invest and get back some of that money it is costing you to fill up your tank.