The amount of oil consumed in the world is unbelievable—85 million barrels a day. And we are not making more of it.
People throw around the term "peak oil," but that doesn't mean the system will run out of oil. It means the amount of oil you're gaining by finding new oil fields—and bringing them onstream—is equal to the losses you're taking as other fields run down. The U.S. was the first country to peak in 1970, but that was a seamless transition since the oil companies just brought in more oil on tankers. Now the U.S. is importing about 67 percent of its oil.
The business of peaking is now usual: There are 30 non-OPEC countries with significant production. Thirteen of these have peaked or are about to peak, and they contribute some 52 percent of the oil volume outside OPEC.
World oil production will peak sometime between 2015 and 2020. The plateau should last for three to five years. The price will go up, since the supply isn't rising and demand will be strong. That will scare people.
Wall Street hasn't accepted yet that the oil reserves are so limited. I think oil will reach at least $150 a barrel around 2015; it could go to $300 by 2020. In the short term, my forecast for 2010 is $77 a barrel. (For 2011, my forecast is $75 a barrel.) I can't see an apparent good reason why oil rose from $67 last September to $87 this April. I'm not surprised oil prices are back down—the market was self-correcting.
There are 50 corporate oil companies around the world that matter to Wall Street. I particularly like the Canadian companies with strong presences in the oil sands of northern Alberta: Suncor (SU) and Cenovus Energy (CVE). Both companies hold well over 50 percent of their assets in the form of oil sands reserves. Both will not stop producing incremental barrels of oil in 2012, or 2015, or 2020, but will be able to travel into at least the 2030s—well beyond peak oil, as no other major can. Both companies will also have improving profit margins.
There are a number of reasons I favor Suncor and Cenovus over, say, ExxonMobil (XOM) or Marathon (MRO). Over the past nine years Exxon has not been able to grow its crude production, compared with around 7 percent annual growth for Suncor. Exxon is struggling with a world where labor costs, taxes, equipment, and other capital costs are up. In the past it could lay off higher costs with high volume. Now Exxon cannot.
Oil companies with long-lived reserves will be highly profitable as both prices and volumes rise over the next decade. Among midsized exploration and production companies, ones like Devon Energy, (DVN) EOG Resources (EOG), and Apache (APA) could be included. Among oil services companies, Halliburton (HAL) should be one of the biggest winners.
The Stats: Charles Maxwell started in the oil industry in 1957, working for what is now ExxonMobil for 11 years. In 1999 he joined institutional brokerage firm Weeden & Co., where he is senior energy analyst.