As its price rises to fresh heights I’m going to return to the topic of oil.

At the beginning of July 2007 I wrote about how I had profited from my long-term view of oil prices and I mentioned three stocks I got into several years ago. As of July 2007, the Canadian Oil Sands Trust (COS-UN.TO) had quadrupled in price in five years, Suncor (SU) had quintupled and UTS Energy (UTS.TO) had sextupled.

So, since then, what has happened to the prices of these stocks?

COS-UN.TO from 32.94 to 48.18 …………..up 46.3%

UTS.TO from 6.06 to 5.45 …………..down 10.0%

SU from 89.92 to 120.44 …………..up 33.9%

In ten months the average rise has been 23.4% (equal weighting) giving an annualized return of 27.5% - which is pretty good.

It would have been a lot better if I’d ditched UTS.TO last year, when it looked like the long-term uptrend was over. I was very patient with UTS.TO though because of my bullish view of oil in general, but it’s time to call it a day. I have now culled UTS.TO because its chart has been moribund for a couple of years. I’ll keep my eye on the other two stocks because the long-term slope of the uptrend has reduced in the last couple of years and it may be time to reassess how I should try to profit from oil in the long term.

I say this especially because I got into these stocks because I thought their price would rise faster than the price of oil. In the past year, however, the price of oil has doubled and the stocks haven’t kept pace.

Today’s Oil News

Goldman Sachs has predicted that oil could rise to $150 to $200 within two years as a result of demand rising faster than supply. (Others disagree.)

Why I Agree with Goldman Sachs and why Hillary Clinton won’t increase anyone’s Oil Production

I tend to avoid politics but I noted Hillary Clinton saying yesterday that she was going to use anti-trust legislation to force the OPEC cartel to pump more oil and bring the price down. Okay, yes, it’s a “political promise” - most of which are worthless - but I’ll use it to make my own point.

My question for Hillary Clinton is: why not use anti-trust legislation to force Texas to quadruple its oil output? Surely that would be easier to enact? The trouble is, of course, that Texas is running out of oil and governments can’t legislate for the magical creation of new oil. (Although the Fed seems to be doing it all the time with money!)

Just as Texas produces less oil than it used to, so does Saudi Arabia, the world’s biggest producer. Saudi Arabian oil production has almost certainly passed its peak. Hillary, you can’t force a country to pump oil it doesn’t have using anti-trust legislation.

Once we are aware of the initial velocity of an object we can accurately predict its entire journey. We use these principles to send spaceships to other planets. Similarly with oil, once we have the first few years’ of production data from a single oil field, or from a country’s oil fields or indeed a planet’s oil fields we can predict the entire trajectory of oil production. This is the basis of the famous Hubbert Curve and Peak. (Google it if you’re one of the few not yet familiar with it.)

This is the heart of the problem. The world’s population continues to rise. Industrialisation of the huge population centers of China and India continues apace. And – just like Texas produces less oil than it used to - so will planet Earth. It may be we’ve reached the peak. It may be the peak is still a year or two away.

Where will the price of oil go? In the short term, I don’t know. As traders we know that when a price trends upward, more people buy for technical reasons – trend followers, momentum traders, chartists - technical analysts of all persuasions. It’s difficult to say how much of today’s price is driven by speculation.

I’m happy to trade on the long-term trend without worrying massively about the fundamentals.

When I consider the fundamentals, the only thing I see that can bring the long-term price of oil down is reduced demand relative to supply; but I don’t see many signs of this happening.