By now it should be clear to everyone that the Saudis are in capable of meeting their stated production goals and that the Kingdom will be lucky to keep production flat in the coming years. At the same time, even without any political risks there is a great deal of difficulty with Iranian production that cannot be overcome easily, if at all. While many of the older giant fields that have supplied the world with the bulk of its oil for the past few decades are now in decline there are no new fields of size to replace their production. Every year we hear of some hyped up discovery somewhere only to discover that reserves are substantially lower, that production will be much more difficult than expected, or productivity will be much lower than initially stated.

What we need to keep in mind is that the easy oil is now gone and that we have probably produced more than half of the conventional oil that has been found. That means that the energy investment to energy production ratio will steadily increase and that costs will head higher over the long term. While we could see demand destruction take prices lower again, such moves will be temporary and will disrupt needed investments to such an extent that it will create significant problems going forward. If one were willing to overlook the desire to act as a degenerate gambler and bet on the short term, there are some very good, low risk opportunities over the long term that should allow the prudent investor to make great returns going forward. Sadly, too few investors are willing to be prudent and choose the simpler and safer, but less exciting path.