An Oil Stock for a Grim New Reality

"World will face oil crunch in five years."

That's not exactly the kind of headline you want to read when crude oil is already at $73 a barrel. When things are this bad -- crude prices are up 12% in the past two months as of July 12 -- you don't want to hear that they're going to get worse.

Yet that's exactly what consumers -- and investors -- should expect, the International Energy Agency said in its latest Medium-Term Oil Market Report, issued July 9. The market for oil will get even tighter over the next five years. (And in case you're looking for a way out, natural-gas markets may be even tighter still.)

As much as I'd like to believe that the agency has made a mistake, the logic behind its pessimistic assessment of supply and demand is impeccable.

In the best case, the International Energy Agency calculates, supply will grow at 1% annually. Even that might be optimistic, though, because global oil production grew by just 0.4% in 2006. That creates just a teeny-weeny problem, because the agency projects that demand will grow by 2.2% a year over the next five years.

Squeezed From Both Ends

Let me explain what is leading to the squeeze that will be so painful over the next five years, and then I'll give you my pick for the oil stock that's best positioned for this scenario.