The End Of Cheap Oil And The Self Directed IRA

We’ve recently seen a significant decline in the price of oil. This has brought gas prices from north of $4 per gallon to the mid to high $3 per gallon range. This has people cheering as it saves them a few bucks each month. However, if you step back from the forest you will notice that oil (and gas for that matter) are 4 times more expensive than they were 10 years ago.

So, when you look at oil through this prism of  time, its not looking so cheap. The real crux of the issue is that all of the current, cheap oil has been found. Any oil that is going to be extracted from now on will come at a premium. A very good case in point is Shell Oil’s recent step forward to drill in the Arctic. Recent is a misstatement given that they started the process to secure rights back in 2002 (10 years ago).

Shell has gone through numerous regulatory approvals which by themselves took several years. Then they had to battle with lawsuits from environmental groups that wanted to prevent them from drilling. Then they had to file a suit against the environmental groups to prevent them from filing more suits. So, here were are 10 years later and not one single hole has been drilled.

Now Shell is confronted with several more years of testing and proving in very technically complex drilling environments. They expect to inucr $7 Billion in costs to bring production online. That is huge and unthinkable 10 years ago, but here we are in 2012 and it seems like a good investment.

This is just one case of what oil companies are doing to bring new resources online. Oil is now four times more expensive than 10 years ago. The regulatory environment is probably 10 time more tasking and complex. The access to resources is becoming more challenging from a logistical perspective not to mention the legal attacks.The point here is that the days of cheap oil are gone. It will only get more expensive. That being said, the opportunities for oil companies to make money are now better.

So, what does this mean for your self directed IRA? This appears to be an opportunity to invest in oil and gas exploration companies. The future for energy looks promising. We are going to see the worlds population expand. We are going to see the third world countries grow, develop and mature. That necessitates increases in energy consumption. We are a much more technologically based people and world which requires energy so support or technology habits. This means that there will be good, small, companies to invest in with your self directed IRA. These opportunities will come in the form of private placements or direct ownership in some of these companies. We recommend that you start researching and looking for these up and coming companies for self directed IRA investing.


The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.