Opportunities in oil

You may not have heard of Edwin Drake, also known as Colonel Drake, but he was an American businessman in Pennsylvania and the first American to drill for oil successfully. He lived from 1819 to 1880, but his legacy has much to do with the high standard of living we all enjoy today.

Edwin Drake did the impossible. The locals around Titusville, PA, often complained about the dirty, black sludge seeping through the earth that occasionally appeared on their shoes while walking on the land. That sludge was actually “black gold” — oil.

Investors knew it, but few could take advantage of the opportunity. Some of the land belonged to an American farmer named McClintock. He had managed to collect around 20 to 30 barrels per season. But no one had been able to figure out how to extract large quantities of it. As early as 400 B.C., the Chinese drilled it out of the shallow earth using iron drill bits and long pieces of bamboo.

Eventually, farmer McClintock sold 100 acres of his black gold land to what would become America’s first oil company, Seneca Oil Company. In 1858, they hired Edwin Drake to drill it. Drake had no military experience, but the president of Seneca gave him the title of “Colonel” in order to impress the local townspeople. After two years of failed attempts, the company severed its ties with him, but Drake refused to give up.

In a last desperate attempt, he tried again, dumping his life savings into the project and borrowing money from friends. The drilling, however, was slow. Progress was made at the rate of just three feet per day. Crowds of people began to gather to jeer at the apparently unproductive operation, and many nicknamed it “Drake’s Folly.” By 1859, Drake was running out of money. Drake’s colleagues back in Connecticut gave up on finding any oil, and after spending $2,500, Drake took out a $500 loan to keep the operation going.

On August 27, 1859, Drake persevered, and his drill bit reached a total depth of 69.5 feet. At that point, the bit hit a crevice. The men packed up for the day. The next morning, Drake’s driller, Billy Smith, looked into the hole in preparation for another day’s work. He was surprised and delighted to see crude oil rising up. Drake was summoned, and the oil was brought to the surface with a hand pitcher pump. The oil was collected in a bathtub until one day, oil shot up from the ground like a fountain. It produced 20 to 30 barrels of oil per day! This was the start of the modern oil industry as we know it.

For the next 50 years, this land called Oil Creek supplied half of the world’s oil. It’s still a prominent drilling site to this day. Oil barons like John D. Rockefeller followed Drake’s lead, improved on his methods, and became the richest man in the country. Oil became a huge enterprise.

By 1909, the U.S. was producing more oil than the rest of the world combined. The oil rush spawned a second industrial revolution that saw the population explode and move into cities. It powered the rise of the rail and steel industries, it led us to victory in two world wars, and it made America the world’s only superpower by the mid-20th century.

The point of this story is that oil has served as the foundation of the U.S. economy for well over 150 years now. Before it, we used whale blubber as a primary source of fuel. Seriously! Can you imagine how long before the world ran out of whales?

Most people don’t realize this, but petroleum is much more than a source of fuel. In fact, nearly every invention of the last 150 years has been touched by petroleum in some way, and most of them are made out of petroleum itself.

Just think about your morning routine. In every step, from your alarm clock and cell phone to your breakfast frying pan and coffee maker, and even your toothpaste, you touched petrochemicals without even thinking about it. Most people don’t realize that when oil companies drill the raw material out of the ground, a lot of it is sent to petrochemical companies, who take the stuff and refine it into products we can use to manufacture everyday items.

These petrochemicals are everywhere. Petroleum products are used in pacemakers, MRI machines, hearing aids, prosthetic limbs, casts and crutches, wheelchairs and artificial hips, and the aspirin you keep in your medicine cabinet. All told, petrochemicals are used in over 6,000 everyday products as well as high-tech devices such as computers, phones, and even solar panels. (How’s that for irony?)

That’s why, when you invest in oil, you’re investing in every industry in every sector. Automobiles, consumer appliances, discretionary goods, fertilizer, technology, and even banking as petrochemicals are used to make credit cards.

When some people talk about getting rid of oil, they don’t realize they’re talking about doing away with our entire modern way of life. There’s a reason why we use petroleum in all these different items. It’s the most versatile substance on Earth. It’s that simple. And until we find something that’s better, oil is here to stay. And anytime oil is cheap like it is right now, it’s one of the best industries you can invest in.

That’s why, in my opinion, higher oil prices are inevitable. Even if the so-called green energy plan succeeds and electric vehicles replace gas-powered vehicles (which will take far longer than anyone imagines, in my opinion), there will still be an incredible demand for oil for everything else for as long as any of us are around. Reducing supply only makes the price higher.

The next time some nutcase tells you that the world is going green and oil will no longer be needed, I suggest you laugh and invest in more of your favorite oil or oil-related stocks. Thanks for reading.