"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 EndsLet 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.
- Not everyone is convinced that high prices are here to stay, so changing behavior radically doesn't seem worth it.
- A lot of consumption is built into the infrastructure of how we live: If you've got to drive to work, you've got to drive to work.
- Reducing consumption can require a long lead time. The next car purchased will be more fuel-efficient, for example, but that could be years away.
- Some consumption is subsidized, so higher prices haven't yet fully hit the market in places such as Iran, Venezuela, Indonesia and China.
- And the U.S., which accounts for 25% of global oil consumption, still doesn't have a national program to reduce demand for oil. The sad fact is that we now use 15% more oil than in 2000.