Oil dropped below $114 today after hovering around $117 per barrel. But I still think the long term trend is up.
According to Kevin Kerr, editor of a commodities investment newsletter,
“The U.S. is filled with gas hogs, but the developing world is catching up. Last year, Chinese drivers bought 5.5 million cars, minivans and SUVs and 3 million commercial vehicles, up from just 1.6 million vehicles sold in 1997. Sales are expected to grow 15-20% this year. Looking down the road, China’s auto sales are expected to grow by 1 million vehicles annually through 2015.
“Meanwhile, India is poised to rocket past China as the world’s fastest-growing car market. Sales of passenger cars in India increased 12.17%, to 1.5 million, in this past year.
“As a result, China’s oil imports are expected to nearly double by 2020, and India’s oil imports are projected to more than triple over the same time period. So while $120 oil and $4 gas may seem expensive, it’s likely that in three years, we will have $250 crude and around $8 gas. I wonder if the ‘experts’ will still be debating whether oil prices are high by then.”
Seems like someone else agrees with my prediction of $8 per gallon gasoline!
Solar energy stocks have also been on a tear lately. I had shorted First Solar (FSLR) earlier this year and I closed out my position with a small profit. However, since then its spiked from $195 to nearly $295! I would’ve made a lot more money if I had just gone long! It’s currently sporting a very high PE ratio of 143. Despite its ~50% jump, I don’t feel comfortable buying stocks which have absurd valuations. As Buffett’s mentor Benjamin Graham believed, you should always look for a margin of safety. There’s no safety in over-paying for a stock.
But regardless of the increase in green energy stock prices, I think alternative energy sources will take a lot of research and time before they can replace oil as a major source of the world’s energy. Until then, I’m happy to keep holding on to my dividend-producing canroys.
For any of you that think ethanol is a viable long-term alternative, I strongly recommend reading Time Magazine’s article: The Clean Energy Scam.
This is a picture of Brazil’s Amazon rainforest which has now been replaced by sugarcane fields to produce ethanol. Yes, its a cheap alternative to Oil, but it is in no way a better or a green solution. In the US, using a food source to produce energy is even more moronic. But until we start having our own food riots, I doubt the government subsidies will go away.