Following is a common dialogue at recent investment meetings with our Canadian clients.
“Where is the price of oil going?”
“The price of oil will increase.”
“When?”
“We are not sure; it may decrease some more before the inevitable increase.”
[drizzle]
“How can you be sure? And if you don’t know when, how can you invest in oil-related companies?”
Let’s break this last question down into its two parts.
“How can you be sure?”
The cure for low prices is low prices.
From economics 101 comes the old supply and demand equation, visualized graphically with Quantity on the x-axis and Price on the y-axis. Where supply meets demand in the graph below is at the marginal cost of production for per-day consumption – approximately US$80 and 90,000,000 barrels. As prices...
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