The U.S. oil and gas boom is only going to get bigger.
That’s the message we’ve been sharing in Growth Stock Wire over the past few months.
New drilling technologies are allowing the U.S. to tap into vast oil and gas reserves locked away in shale. Proven oil reserves in the U.S. – the estimated quantities of oil that can be extracted profitably under existing conditions – rose from 19.1 billion barrels in 2008 to 30.5 billion barrels in 2012. That’s a 60% increase in just four years.
[ad#Google Adsense 336×280-IA]Meanwhile, U.S. oil production has increased 63% from the low in 2008 to today.
That’s a massive increase in a short period of time.
And as we’ve shown, these technologies will help U.S. oil production keep soaring.
That’s why we recommend owning U.S. oil stocks.
“But wait,” you might be thinking, “rising supply should mean lower oil prices. And lower oil prices would be bad for U.S. oil stocks.”
That’s true. But there’s one reason we remain bullish on U.S. oil stocks despite rising supply…
World oil demand will continue to outpace supply.
You see, while U.S. oil production is soaring, that’s not the case with the rest of the world.
According to the Energy Information Administration (EIA), the world will need 93.1 million barrels of oil per day in 2015. But the world will only produce 92.9 million barrels of oil next year. That number includes America’s production.
More demand than supply means global oil prices are going to remain high.
And without large production growth, this imbalance will only get worse.
China’s demand for oil is expected to grow 80% from 2010 to 2030. That means the world will need to produce an extra nearly 8 million barrels of oil per day just for China. India will need another 2.3 million barrels per day.
But Asia doesn’t produce much oil. So its demand must be met by imports. That means its impact on the import market will be huge.
China imported just over half of its oil consumption last year, or 6.5% of the world’s oil production. By 2040, the EIA expects China to import 72% of its consumption, or 17% of the world’s oil production. The International Energy Agency (IEA) expects Asian oil imports as a whole will make up 65% of the international crude-oil market by 2019. That means the rest of the world will fight for whatever is left.
To keep up with demand, the IEA says the world needs to invest $40.2 trillion in the energy supply over the next 20 years. More than half of that would have to go toward maintaining current production levels.
The rest of the money – around $16.5 trillion – will be required to meet rising demand. Much of this money would need to go toward rehabilitating and developing southern Iraq’s giant oilfields.
You see, Iraq is one of the largest oil regions on Earth. It is officially credited with about 115 billion barrels of proven oil reserves, the second-largest total in the world. But recent reports indicate another 45 billion to 100 billion barrels of oil could exist under Iraq’s western and southern deserts. All told, Iraq could have more than 400 billion barrels of oil.
That’s why the country holds about 60% of the growth capacity of the Organization of the Petroleum Exporting Countries (OPEC) – the oil cartel made up of some of the world’s largest oil-producing nations.
In short, for the world to keep up with rising oil demand, it needs to tap into southern Iraq’s oil. But as you probably know, much of central Iraq is now a war zone. Some international oil companies operating in southern Iraq, like BP and ExxonMobil, are pulling people out of the area. Shell and PetroChina are ready to pull their people out if the fighting gets any closer.
Based on the current situation, it’s unlikely oil supplies from Iraq will be ready in the coming years. And the IEA’s executive director, Maria van der Hoeven, says this would cause global oil prices to soar.
At the EIA’s annual energy conference last month, she said if investment in Middle East oil fails to pick up in time to avert a shortfall in oil supply in the 2020s, “the result would be tighter and more volatile oil markets, with an average price almost $15 a barrel higher in 2025 than would otherwise be the case.”
In short, it’s unlikely global supply will keep up with demand. And high global oil prices will be great for U.S. oil stocks.
Sponsored Link: As we’ve said in these pages before, the U.S. shale energy boom is this decade’s greatest investment theme. That’s why we believe every investor should own U.S. oil stocks today. And later this week, I’m releasing my “must own” oil portfolio in the S&A Resource Report. I’ll share which types of companies will benefit from the trends taking place in the oil industry today, and the specific stocks I recommend owning. You can get the issue the moment it’s released by signing up for the S&A Resource Report here.
Source: Growth Stock Wire