Keith Fitz-Gerald

Why Every Investor Needs an Energy Strategy

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The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it's a disservice to millions of investors because production is declining at a pace that's actually three times faster.

And that suggests higher oil and gasoline prices in coming months -- perhaps as much as 50% to 70% higher, or more -- particularly if a U.S. economic recovery is truly in the offing.

The Case for Higher Oil Prices

To really see what I'm talking about, let's start with a close look at consumption. I'm asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week. (Get 10 Money Show Trades You Don't Want to Miss.)

For months we've been hearing about a drop in global demand. It's a popular story and one that sounds credible. After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and carpooling to school or work. For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 -- nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that's almost a 3% drop.

I have my doubts that we'll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.