Please ensure Javascript is enabled for purposes of website accessibility

The Frightening Idea of $100 Oil

By David Smith – Updated Apr 5, 2017 at 4:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why have oil prices raced upward so quickly, and what does all this mean to you?

Let's talk about the somewhat -- no, tremendously -- daunting phenomenon that we'll almost certainly be facing in the not-too-distant future: $100 per barrel of oil. We're already in the 90s and trending upward. I well recall that, as an operative of Pennzoil Company -- now part of Royal Dutch Shell (NYSE:RDS-A) (NYSE:RDS-B) -- earlier in my career, I knew $100 crude was on the horizon. The big surprise is that it didn't arrive far sooner.

Let's look for a minute at the reasons that crude has gone from around $60 per barrel to almost $100 per barrel just this year. Of course, there's supply and demand. Specifically on the demand side, we realized a few years ago that the nations of the developing world (read, China and India) were using far more petroleum products each year, with little likelihood that their new growth rates would subside.

There also are other factors, such as increased futures speculation in the oil markets, a relatively new phenomenon that's raised the crude price by goodness knows how much. Beyond that, many of the producing nations -- I'm thinking about such places as Venezuela, Nigeria, Iran, Iraq, and, yes, Russia -- are at least somewhat less than dependable politically. During this year, fear has increased that one or more of those garden spots could erupt, playing havoc with the fear premium in the oil price.

Last, but not least, are the sliding U.S. dollar and percolating concerns that, while global demand for oil continues to rise, the world is slowly losing its ability to increase production apace. It's my conviction that the latter consideration will only increase in importance in the years to come.

I'm also virtually certain that we haven't felt the full economic effects of higher oil prices and the resulting hikes at the gasoline pump. Obviously, lots of goods and services, from airline tickets to clothing, are destined to follow suit with higher levies of their own. And I fully expect the sizable paycheck-to-paycheck crowd to begin pulling back on all manner of expenditures as they begin to feel a more perceptible financial pinch.

As to the place to put your money amid expensive oil, I've seen all sorts of suggestions in the past several days, from defense contractor Lockheed Martin to biofuels facilitator (among other things) Monsanto (NYSE:MON). For my money, the best place for your investment pennies -- as we watch the world intensify its search for hydrocarbon reserves -- is still the oilfield services providers, such as Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Transocean (NYSE:RIG), and Diamond Offshore (NYSE:DO).

So, Fools, it may not be over just yet. With the price of oil skyrocketing, industries beyond oil will feel the pinch, as will consumers. Keep an eye on the implications of $100 oil -- it's going to be a bumpy ride to the gas station.

For related Foolishness:

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does pump gasoline more frequently than he'd like, though, and he also welcomes your questions or comments. The Fool has a disclosure policy

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Transocean Ltd. Stock Quote
Transocean Ltd.
RIG
$2.36 (-7.45%) $0.19
Schlumberger Limited Stock Quote
Schlumberger Limited
SLB
$35.00 (-8.45%) $-3.23
Diamond Offshore Drilling, Inc. Stock Quote
Diamond Offshore Drilling, Inc.
DO
Halliburton Company Stock Quote
Halliburton Company
HAL
$24.58 (-8.69%) $-2.34
Monsanto Company Stock Quote
Monsanto Company
MON

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.