For all the talk about green energy, one thing remains true.
Oil still dominates.
Without oil, Western civilisation wouldn’t exist.
The discovery and exploitation of oil in the late 19th century is inarguably one of the most important events in the history of mankind.
So it’s no wonder that when oil explorers strike oil, stock prices soar. But something else happens too — political tensions rise.
Free Reports:
There’s no doubt that if you want to know where the battle lines are today, it’s not just about war. It’s about oil too…
More than 20 years after the supposed end of the Cold War, there is still tension between the US and Russia.
You can see that in the ongoing wars in the Middle East. Russia has its allies and enemies. The US has its allies and enemies.
This was obvious with Russia’s annexation (or liberation, depending on your point of view) of Crimea from Ukraine.
That caused the US and European Union to impose trade sanctions on Russia. That meant companies such as Exxon Mobil [NYSE:XOM] had to start winding down their Russian operations.
To make this story more interesting, Russian oil firm OAO Rosneft has just struck oil in partnership with Exxon in an oil field that could rival the Gulf of Mexico.
The US, which has for so long been a net importer of energy, is on the path to energy independence. That’s mostly due to the discovery and production of onshore shale oil and gas.
Many nations in Europe are looking at shale energy too. The UK hopes that shale energy could replace its depleting North Sea oil reserves.
Development of European domestic shale oil and gas is a problem for Russia. Russia is Europe’s biggest supplier of natural gas.
If Europe finds its own sustainable energy supply, what will happen to Russia?
Clearly waiting around isn’t an option. Russia has to bolster its reserves. It needs to in order to help grow its own economy and strengthen its position as an exporter. That’s especially so when it comes to supplying high-growth economies such as China and India.
So the recent oil discovery off Russia’s north coast — in other words, in the Arctic — could be a game-changer.
As Bloomberg reports:
‘Russia, viewed by the Obama administration as hostile to U.S. interests, has discovered what may prove to be a vast pool of oil in one of the world’s most remote places with the help of America’s largest energy company.’
The report says the geology off Russia’s north coast could be similar to the Gulf of Mexico.
If it is, that could be a boon for Exxon. As the article also notes, Exxon has drilling rights across 15.1 million acres in the US. In Russia it has drilling rights across 11.4 million acres.
So Russia is by no means small potatoes for Exxon.
The demand by consumers for oil is huge. The need for oil companies to discover more resources is even bigger.
It’s easy to forget the energy market dynamics when almost every news story on resources is negative.
Iron ore is down. Gold is down. Even the crude oil price is down this year.
And yet, without oil and gas, everything stops.
Even Elon Musk’s hot Tesla electric cars will only work after charging its battery from the electricity grid. This mostly comes from gas (or coal) fired power stations.
And for all the talk about the world moving to green energy, the demand for oil has never been higher.
That demand grows each year. It will grow even further as China and India’s urbanisation rates grow.
Oil stocks have taken a beating in recent months, along with the rest of the resources sector. Yet, as the discovery off Russia’s northern coast shows, when an oil company finds a new resource, it’s big news.
It has always been that way, and it always will be that way.
If you’re looking for one commodity to back over the next five years, oil is about as close to a ‘dead cert’ as you can get.
Look out for the opportunities as they emerge. Oil and gas may not have the novelty or excitement of tech and internet stocks, but as far as multi-digit returns go, there isn’t much to beat them.
Cheers,
Kris+
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