Since Christmas 2008, oil prices have more than doubled. The bulls are declaring that oil is back. But I’m not convinced. You can make a great deal of money in the oil patch, but not by betting long on oil. The odds are simply no longer with you. Once an asset doubles, the chances of it doubling again go way down. Sure it could happen with oil. But it’s a sucker’s game. The big winners sitting on their piles of cash are more likely to walk away from the roulette table than risk losing all that dough. That by itself would push the price of oil lower.

I have a much better deal for you. It’s not based on guessing how much more oil will go up (or if it will go up at all). It stems from oil’s biggest and most obvious need. That’s where the big money will be made in the oil patch…

Oil companies need to find more oil.

When reporting on their fourth quarter performance last week, they complained about horrible refining margins. And they were horrible. But did you notice that most of the big oil companies also reported flat to barely visible output gains? And, meanwhile, the price of oil was going up?

That’s either incredibly poor planning or oil companies have no more tools in their toolbox to increase their oil output. Or how about a little bit of both?

Oil and gas producers cut spending by 15% last year… down to $395 billion. There could be a slight increase, at best, this year. What’s more, companies were leasing 1,385 rigs as of late last year, a 40% drop from the year before.

Oil companies talk about raising production. But just follow the money. Talk is cheap and so are the oil companies when it comes to investing in their E&P (exploration and production) operations.

They need to start spending and they need to start filling that toolbox back up again. Otherwise, they’re not going to be able to leverage rising oil prices. And, long term, their cupboard will become bare. No more oil means no more oil companies.

But don’t worry. A future without oil or these big oil companies ain’t in the cards.

The View From 10,000 Feet

The view from 10,000 feet indicates that things will start lining up for the oil companies again and sooner rather than later…

Basic Energy Fact #1: Oil is the lifeblood of modern society – has been for quite a while. In fact, the rise of oil and the modern economy has gone hand-in-hand. One would not exist without the other.

Basic Energy Fact #2: Energy consumption will rise 35% by 2030, according to a number of energy research firms and oil companies. And which energy resource will be number one in 2030? The same one that is number one now: oil.

Basic Energy Fact #3: Renewables like wind, power, hydro, and thermal will increase their piece of the pie. But don’t expect miracles. I love solar and wind. But I don’t expect energy production from them to contribute more than 10% of the total energy pie by 2030. Right now, they have a 5% slice.

Some people are crying collusion, but I doubt there is any. What’s happening right now is part of the boom and bust cycles endemic to the energy sector. In down times, underinvestment prevails, nicely setting up the boom part of the cycle.

Underinvestment will give way to rising prices, leading companies to invest more in E&P. Eventually, supply will catch up to demand and prices will fall. A bust is turning into a boom right in front of our eyes. If you weren’t being bombarded by so much useless and/or conflicting information, you would have seen it for yourself.

At 10,000 feet, it’s as clear as day.

Peak Oil Is a Crock

The good news about supply? Peak oil is a crock. There’s plenty of oil. It’s just harder to get to it now than it was 20 years ago. By the way, there’s also plenty of natural gas. Problem is, the natural gas is trapped in shale rock. And the oil is deep underground or below miles of sea or mixed with sand or in places where the underground pressure to bring it up has fizzled out.

The question isn’t whether the technology exists to get hundreds of billions of barrels out of the ground. The technology is there. But in many cases, deploying it is an expensive proposition.

How to light a fire under the oil companies? The answer doesn’t lie in government subsidies and grants. That’s the last thing the oil sector needs. Let the marketplace motivate them. Let supply run low and prices run high. With fat profit margins to fall back on, new technologies will be unleashed.

The big integrated oil companies will benefit nicely. Take your pick. ExxonMobil, British Petroleum, Chevron, and Conoco-Philips all make nice long-term picks.

But there’s another reason why I’m convinced that peak oil is a crock. There’s already a proven technology out there that takes petered-out fields whose oil output has been reduced to just a trickle and jacks up production again. The company that owns this technology is buying up abandoned oil fields for next to nothing.

IDE’s Dr. Rusty McDougal (who edits the Resource Windfall Speculator) loves this company. He thinks that among the many impressive new oil-field technologies we’ll be seeing in the next five years, this is the one most likely to revolutionize the oil industry. The company that owns it stands to do very well for itself too, as Rusty explains in a free report he has just written. Check it out here.