What’s a Sure Thing? – Part 2

A few weeks ago I wrote that my view of what is and isn’t a “sure thing” has changed. I used to share the common perception that gold and oil were commodities that were safe to put your money in. Now I think Facebook is a safer place for my money.

Facebook is selling social connections, which has been valuable for longer than gold or oil. Even better, FB has acquired Instagram, WhatsApp, and  Oculus Rift. The acquisitions prove FB can adapt in a rapidly progressing market.

Oil’s Desperate Fight to Stay in Power

I wrote the article when the long-term value of FB suddenly hit me. I then started thinking about and questioning the value of commodities that I previously considered long-term safe bets. The real evidence came after the revelation. What hits my point home is just how bad oil markets have been recently:

Oil_DraggedDown.png

OPEC Not Slowing.png

So OPEC keeps pumping oil at full speed, flooding the market, and dropping prices. If oil’s cheap, more people buy vehicles that run on oil and install oil heating in their homes. But when will oil prices go back up?

Oil As A Valuable Commodity

When will oil prices be high again? That seems tricky as solar panels have been getting cheaper and cheaper and natural gas is being integrated into our infrastructures.

Every quarter that OPEC keeps oil costs low is a quarter where more R&D is done on solar cells, making them ever cheaper and more efficient. Every quarter they keep prices low is more time to research and develop renewable solutions. With European law makers mandating renewable energy, the R&D will continue regardless of oil prices. The result is that the longer OPEC keeps prices low, the less likely it is that they’ll be able to raise them again without becoming uncompetitive.

Option 1 – Oil prices stay relatively low forever. Oil as a commodity is never worth as much, ever again.

Option 2 – Oil prices stay low for now (to gain marketshare) but begin to gradually increase in a year or two. Three or four years from now, oil will be back to $100/barrel. Marketshare growth stall and the fall of oil will begin. Why?

  • Solar cells will be four years more advanced and cheaper.
  • Wind turbines will be more advanced and cheaper.
  • Natural gas cars, plants, furnaces, etc. will be more popular
  • Germany’s first fission reactor will be years into testing.
  • Tesla will have rolled out its $35,000 fully electric car.
  • Other automakers will have rolled out hybrids.

The world is developing and more people are using more energy. But those people are going to choose their energy based on three costs:

  • The startup/initial costs
  • The ease of startup/installation
  • The on-going costs

When you look at the haves and have-nots of our world, a lot of the have-nots are in hot and often tropical climates. Sun, s-sun, sun, sun!!! Even in places with long rainy seasons, they often get intense sun for at least part of the day before or after it rains.

So oil’s not going anywhere soon, but long term it’s going to do nothing but continue fighting harder and harder for marketshare. Since there will be a handful of good alternatives with ever cheaper entry costs, even as oil becomes more scarce prices won’t sky rocket. In my view, there is no oil crisis sneaking up on us, just its gradual fall into the history books.

 

 

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