These 6 Oil Plays Are Still Pumping

Focus: STOCKS

With all the talk of natural gas and the ineluctable pull of King Coal, oil still matters and will for a very long time to come, observes Robert Rapier of Personal Finance.

I expect oil prices to rise for years, but natural gas prices are unlikely to hit new highs any time soon.

Why am I bullish on oil? Reason one: no scalable, economically viable replacement for oil exists. Oil became the world's dominant transportation fuel thanks to three key qualities- cost, convenience, and abundance. No alternative fuel meets all three criteria, although some fulfill one or two. That may change someday, but it won't happen quickly.

Reason two: rising demand from de­veloping countries. Note that between 2005 and 2010, oil consumption fell by 1.6 million barrels per day (bpd) in the US, by 1.2 million bpd in the EU, and by 900,000 bpd in Japan.

However, outside of Japan, the rest of the Asia-Pacific region increased its oil consumption by 3.6 million bpd over this period, and other develop­ing regions showed the same trend: consumption rose 1.6 million bpd in the Middle East, 1 million bpd in South America, and 450,000 bpd in Africa. The net result: overall global oil demand increased by more than 3 million bpd over this time period.

Some of this increased consump­tion occurred because oil-exporting regions, such as the Middle East, were reaping windfall profits and had more to spend. But developing oil-import­ing countries also experienced consumption growth, despite high prices.

Demand growth in developing countries in the face of $100/bbl or higher oil may at first seem counterin­tuitive.