I'm also interested in this subject.  I look at USO and think it looks cheap, but what macunix said occurred to me, too.  I think the big difference is that back in the 70's, oil spiked because of OPEC shutting off supplies.  This year, oil spiked out of OPECs control, IMO.  Call it speculation, peak oil, hurricanes, or other, but I just don't think the cause of the spike is the same. 

While I don't agree with peak oil's most dire predictions, I think the peak oil people have a point:  supplies can't last forever, and people have a habit of dithering until the crises is right on their doorstep.  (See current situation for an example.)  If we do goof around until oil supplies get really tight, that could lead to high prices down the line that a young investor like me can take long term advantage of.

comico:

I'm also interested in this subject.  I look at USO and think it looks cheap, but what macunix said occurred to me, too.  I think the big difference is that back in the 70's, oil spiked because of OPEC shutting off supplies.  This year, oil spiked out of OPECs control, IMO.  Call it speculation, peak oil, hurricanes, or other, but I just don't think the cause of the spike is the same. 

While I don't agree with peak oil's most dire predictions, I think the peak oil people have a point:  supplies can't last forever, and people have a habit of dithering until the crises is right on their doorstep.  (See current situation for an example.)  If we do goof around until oil supplies get really tight, that could lead to high prices down the line that a young investor like me can take long term advantage of.

hey comico, i look at DUG and it looks cheap :)

yeah, i had my first exciting stock trading experiences with O&G around the 1980 spike. it was a blast but i stayed in too long and got stuck holding companies that were just as busted as etoys.

i've argued a lot with the oil bulls on this spike. they always said 'it will be different this time' and 'demand from india and china', as if a worldwide recession wouldn't affect demand there too. imo, whatever causes the spike, the result is recession, that kills demand, and the oil price crashes.

i sold my O&G  stocks in mar-apr but held onto my alt energy too long.

who knows - maybe it will be different this time. 

You'd think oil was cheap considering how everyone is talking about the oil bubble and seeing how energy shares have gotten hammered.  Interestingly, oil is now back over $90.  The spike earlier in the year really distorted expectations (which really seems like an anomaly).  It took a long time, but as soon as oil broke $100 a barrel it started going up at a parabolic rate, which was not sustainable. 

Things would look different if oil had only gotten up to about $105-110 or so.  The fact is, crude oil is down only about 5% from the start of the year, meanwhile energy stocks are down about 35%. If you thought that energy was a good buy in January, then it's a better one now, except now sentiment has changed and everyone thinks the end of the world is coming. 

Nagorak:

....If you thought that energy was a good buy in January, then it's a better one now, except now sentiment has changed and everyone thinks the end of the world is coming. 

i disagree. it's not just sentiment. if we're heading into worldwide recession, worldwide demand will be way down and the oil price will not be supported. it seems to me that in these markets the price does not smoothly adjust to whatever demand there is, but following a volent swing up it violently swings down.

also a lot of hedgies will be out of business, or short, while in jan they were buying.

tom 

We can't not need it that quickly can we?

25 years ago my FIL plopped a bunch of money into Kaiser Francis Oil for us.  Paying zero attention to it all these years, the rest of the kids all sold theirs. 
We didn't.

I got a check for $37.00 the other day!!  Last time we got a check over this amount was after Katrina.  Sad but true.

GG

GG-

"We can't not need it that quickly can we?"

Hot money bid it up and claimed that it was new demand from EM's.  Hot money is bidding it down now.  Remember the righteous indignation on CNBC when some Congressmen suggested that the price was being manipulated.  Then some fairly knowledgeable billionaires testified that it was true and CNBC went silent.  Now it is obvious to the casual observer...

We need to wean ourselves off of oil... 

erryl

Erryl and others: I am afraid I do not have any pet answers. This is a multifaceted problem. If I were to look at the marginal production cost of oil, we had probably overshot that price greatly when we had oil at $147. It is now coming more into line with the "last barrel" cost of producing oil. This oil comes from a nasty mineral, tough to mine, tough to refine and from a frigid place in Canada. It costs a tremendous amount of capital to bring it on line. For example, Shell has annouced plans to spend over Canadian $26 billion of capital over the next 10 years, to bring on an oil stream of roughly the size of Alaska's Prudhoe Bay.

Just to put this into perspective, Alaska's Prudhoe Bay production is less than 20% of what US needs, or less than 5% of what the world needs. These are gargantuan costs and this will need to be funded, and then it will need a return on that investment. The very fact that these plants are needed, tells you how difficult it is to find large tracts of oil. Those days are gone.

As a result, what you need are companies that can go after these projects. I am not so positive on Oil Services companies because I could foresee oil stalling here in a trading range. When that happens, all those wild projects start being put on the backburner. Only solid projects move ahead. When such a thing happens, we will be sort of in the early 80's period when oil companies cut their exploration budgets & service companies suffered greatly. Houston almost became a ghost town back then. Thus, I am not sure I like service companies from here on when oil (& gas) stays in a trading range.

The challenge is to find strong companies that have the wherwithal do it. The big IOCs (International Oil companies) like XOM, RDSA, COP, CVX etc do have the wherewithal to get these reserves on their books. My inclination would be to look for solid companies that are growing their reserves. Companies like PBR, PetroChina will also work (within the context of not having too much in EMs). Another one I like is OXY as they are taking this opportunity to buy up assets from cash strapped smaller producers. By the way, most of OXY's oil is right here in the US, so the whims of OPEC, Russia or China are unlikely to affect their revenues, other than thru the fundamentals of supply & demand. Anyway, I hope this long answer provides you with some ideas. Best wishes .... Anil

Anil,

yep, i got stuck holding the bag with service cos in the 80s. funny how drilling mud isn't so sexy after the bubble bursts.

sure we will continue to need oil, even with plummeting demand in a worldwide recession. however, the place to find it cheaply is the middle east.  in 1980 there was just as much talk about alternatives and independence  as there has been recently - using the very same words, actually - and it was all scrapped.  so what we will do is import that cheap saudi oil and burn it, imo, and set ourselves up for the next leg of the cycle....tom