Story Comments

I've been a reader of your column for many years. I have profited from your insights in the past. In my opinion you are not understanding what is happening in the world with oil. This is the most important event in our generation. We are in a situation of peak production with growing worldwide demand. Why on earth would you write call options for oil companies in the midst of a huge surge in demand, decreasing supply and rising prices. Its like standing in front of a speeding freight train. Get ready to close-out your calls at far higher prices or relinquish significant profits.

1) Do not confuse short term cyclical corrections in oil as a change in trend.
2) Previous inflation adjusted highs in Crude were 1890 @$95 BBl and 1981 @$93 BBl. In 1981 My Pontiac got 12 MPG downhill with a tailwind. Today my larger Caravan gets 24 MPG to 28 MPG! In 1981 Carter, taxes on oil and wage price controls collapsed the economy. Equivalent pain mer mile is around Crude $200 and Gas at $10!
3) Short international oils but North American giants like SU and ECA are your insurance against the next oil embargo, Hugo or Nigerian rebels.
4) Oil demand for many reasons ratchets up but decreases in demand are quite inelastic. Consequently, variations in real or perceived supply cause dramatic price fluctuations.
5) Only economic alternatives such as solar, nuclear and clean coal can impact demand long term. While solar is crossing that threshold at $125 crude, production capacities will take years to nominally impact crude demand where uses are non-mobile.

Quote:'I won't enjoy my further gains if they keep coming at the expense of everyone else. ' Some ways of making money are not moral. Speculation has driven the cost of driving to work almost impossible for many people. Again, sometimes it is an immoral way to make money. Would you make money by profiting from a slave trade? or weapons that hurt third world people? food that means survival for the very poor or even the working poor? Sometimes you have to look at how your money is made and if it fits in with your sense of morality--can you live with what you are doing? I will Opt Out, Thank You.

Widesmile, I agree with you totally. Now more than ever, you need to really be aware of your mutual fund holdings. Many fund managers may try to get into the energy sector to goose their profits. The problem is that getting into
the energy sector right now may be too late or you may be unaware that your energy sector holdings exceed your risk tolerance comfort level. That is why it is so important to be disciplined and periodically review the top 10-25 stock holdings of a mutual fund. Many mutual fund companies will also give you a percentage breakdown of investment sectors: energy, healthcare, industrials etc. I do this every 3 months. A good fund manager will outline their investment strategy and stick to their guns.

GFU Jim. admiditting one's Mistakes... But in regards to
'I won't enjoy my further gains if they keep coming at the expense of everyone else. ' I have to take issue with.. as a True capitalist and Opportunist in making a Profit? You contradict yourself.. All but CD's take Advantage of everyone Else.. That's Competition.. You recommend buying stock when it's down and sell when it's high? But How long do you Keep it? 10-20 yrs to help Support the company and it's employee? I think not.. And People thinkk were their $ is and if Oil Goes to $200? They will be More Conservative as we should have been Decades Ago..Instead of Squandering our Resources as we have.. Gas Prices have been Artifically Low for Decades Only to support The Auto makers..who Lobby for this policy.. Ie: from Andy Rooney/60 min.

This is a great article from a disciplined investor. I recently rebalanced my investments to take advantage of the run up in the energy sector. Yes, oil could go higher there are sound arguments here. But does it reflect your overall strategy for investing. I think that some people are unaware of how much exposure they may have to oil (energy sector). From large to micro caps, many mutual funds have added this sector to boost profits.

I agree with all the posters, that this is not an oil bubble more than it is a secular trend that we are witnessing. However, depending on your investment outlook for trading: 1 day, 1 week, 10 years, there will likely be a painful correction coming soon. What we are trying to convince ourselves is if we have bought into this commodity sector at a cheap enough price to withstand a major price correction before the secular trend resumes its updward momentum. To those wanting to sell, and make a quick buck and then get back in on oil pricing weakness, you need to be really nimble and savvy. I personally don't have that talent. I am am ultra long term investor.

Mr. Stewart: Your pragmatic honesty is refreshing. While your implied thesis that we can't know what we can't know will forever remain intact, we do know that daily demand for bbls. of crude roughly equals daily supply with virtually nil spare capacity. My antithesis for you to consider is that while peak oil is a myth, with proven reserves virtually untouchable in the U.S. due to environmental histrionics, a probable Democrat controlled Congress and maybe Executive branch, offering no reasonable relief in the area of E&D, and imbecilic but politically palatable solutions du jour such as ethanol, my money (literally) remains on higher fossil fuel prices and related stock market returns as an investor and not as a speculator or trader.

My XLE has doubled for me, yet every time I get ready to pull the trigger some world event causes oil to go up again. Today oil hit $127!! Sure it may come down, but something tells me we haven't seen the worst in geo-politics. Oil production is struggling globally, demand is still growing. Here's where I get a payback on that tuition for Econ 101!!!

Oil is a finite commodity. Gold is too, but we don't burn it up. Why can't the price go to $200 or $400 a barrel? It is just possible that we are running out.
There isn't enough speculation going on to drive the price from $25 to $125. It is supply and demand, and the supply is getting ever smaller. Don't sell your futures or energy stocks and don't bet against this trend. Could it be disastrous for the world economy and especially the US? Absolutely.

You are right, a very complex situation. But looking around the world you can find 30 events right now that can hold up the oil price. And open the paper tomorrow morning.

Thankfully, I have been betting on rising energy costs in fossil fuels since 3 years ago. Even so, I never keep > than 20% in my portfolio. The argument by scientific fossil fuel experts has been too repetitive over the years. The world is simply beginning to consume more than we can produce. However, I agree that the weak dollar has fueled upward speculation in the price of oil. However, we also don't know how much the price of a barrel of oil will drop when the dollar begins to regain its strength. That is the evil tax about inflation. Once prices go up, they never really reset back to previous levels.