Oiiillllll.... oil! - Prediction #8

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Don’t count on oil rebounding beyond $55 dollars a barrel (or a 20% increase from today’s price of $45.80).

Back in 1997, when I was a kid and starting my first trek in investing - which I wrote about in my first prediction - I believed that Apple would be popular amongst the masses and I also believed that green and solar energy were going to be “the way” and the biggest thing since oil.

That was pretty early to make a bet on the solar energy as it was in its early gestation phase - not quite ready and not nearly cost efficient for the masses. It was expensive and people weren’t ready to get off the oil needle.

Unfortunately, solar, like nearly everything else in this world, is organically regulated by supply and demand: not enough demand, cost goes up, supply goes down. This was the case when the green movement lost its momentum on Wall Street during the late 90’s/early 2000’s.

But during this time the United States was beginning a cultural revolution: enter "Conscious Consumerism". People were starting to get educated on where their food was from (remember Super Size Me in 2004) and the origins of things (Free Trade was a big hit in the Clinton Era). At the age of 16, I was a vegan and then a vegetarian for a couple of years. You can imagine how well that went, growing up in Indiana with a father that is a hunter. I was a vegetarian for political reasons - I believed that how animals were raised would burden us economically and destroy our environment. This shift in ideology amongst consumers, like myself, can give insight on how we will wean ourselves from oil.

Solar energy technology is making its appearance in automobiles, homes, corporate offices, and personal devices like charges for our cell phones. Solar is here and more popular than ever. Hydrogen energy is making a huge emergence too! The cost savings (requiring people to do a little math as it is an upfront investment) is finally there with solar and hydrogen energy. People care enough, from an economic perspective, to install these beautiful and environmentally friendly devices. Conscious consumerism taking effect.

New companies and auto manufacturers are effectively leveraging “green” technology as a marketing ploy and a way to increase profit margins. The green movement appeals to those conscious consumers which are willing to pay a premium for preserving the earth.

The irony here is that oil is now cheap and we are still seeing solar energy technology become a part of our everyday life. That being said, the price of oil is steadily increasing and making Texans and oil tycoons happier than pigs in shits. However, the airline industry has started pulling back on their fuel hedging businesses as they saw a ton of losses over the past year; read more about that here.

People, companies, and the environment are literally exhausted from the volatility and control of the oil industry. We are tired of the spills and the environmental collateral damage; we are tired of the political control that oil emits; we are tired of being dependent on our ability to travel, live, and breath based on oil.

Oil is in everything. Literally, oil touches everything from converting and distributing solar energy, to the food we eat and the clothes we make. But, oil gave solar and hydrogen power a window of opportunity over the last five years to go beyond its gestation period and appeal to the masses. 

Oil isn’t going to have some catastrophic rebound back into the $100 range - in fact, I don’t see oil going past $55 a barrel in the next couple of years. Even though it is a natural resource in finite supply, oil has had its heyday. Rise up conscious consumer!   

To further add to my belief that oil is maxed out, just look at what is being invented in the field of synthetic biology. Synthetic biology is the synthesis of engineering and the organic.  At the end of the day we will probably invent some crazy line of code in an experiment in synthetic biology to mirror oil and replace this natural resource.

That’s a whole different prediction.