According to a report on the CBC, Canada has the third highest oil reserves in the world. While this may sound fine and dandy for many, I am of the persuasion that what matters the most, is how much of this oil is reliable. The CBC reported on August the 14th 2015, that most of Canada's oil is so deep, that there are no current technologies to extract it!
According to the same CBC report, it costs approximately $100.00 CD per barrel to extract oil, plus an additional $10.00 per barrel to transport it. As of the end of August, the price for a barrel of oil was $61.78 CD.
According to the World Bank's Commodity Forecast Pricing Data on spot crude, are predicting oil to rise to ONLY $70.80 US per barrel by 2025 in real US dollars.
Billionaire, Saudi Prince al-Waleed bin Talal, made headlines by saying that he believes that oil will never reach $100.00 again. Unless Saudi Arabia changes their policy of market share, which is unlikely, oil prices will remain low for a long time.
Couple this with the slide in emerging market growth, particularly China, we have a “perfect storm”.
In addition, the world is leaning towards decarbonizing and alternative sources of energy, potentially serving as another major disruptor to the price of oil.
This is a good lesson on the benefits of portfolio diversification which I have preached for many years.
Happy Investing.
Written by: Robert Roby
17 October, 2015 Financial Planning