Investors have none of the sentimental wishful thinking or need to win votes that politicians have. They know what they're talking about, as the following piece from The Right Side shows clearly!

Get ready for an oil shock

The price of oil is rising. Throughout July and August, the price of Brent crude oil edged higher – hitting over $115 last week. And that wasn't supposed to happen.

As global growth slows, we're supposed to need less of the black stuff. Then there's all the shale oil production coming out of the USA – that should be depressing the price. But oil is rising. And it's beginning to cause serious problems.

Here in France fuel prices are as high as they've ever been. And the French aren't having any of it. President Hollande has promised to cut prices at the forecourt. He wants make the oil companies pay and kick it back to punters in the form of a tax break...

But by my reckoning, the French and everyone else are going to have to prepare for higher oil prices. Today I'd like to explain why I think we are headed for a serious oil shock. And rather than suffer as prices rise… I'd like to show you how you could profit.

Believe it or not, oil is cheap

An awful lot of work and effort goes into getting your litre of petrol to the forecourt. It starts with exploration, the costs of which are mind-bogglingly high. You need to raise hundreds of millions, if not billions, if you want to drill offshore – and even then, you may not find anything.

If you do, you still need to get it out of the ground from some remote and often inhospitable place. Then it's got be transported, refined and then safely transported again before it reaches your local garage. And let's not forget the government's take...

I mean, just the fuel levy and VAT make up about 60% of what you pay at the forecourt. Then there are all the taxes the government hits the oil companies with.

And yet, despite all of these significant costs, you can still get a litre of petrol for about £1.40. Crikey, I often pay that for a litre of water at the forecourt! Fuel is cheap.

But this happy situation won't last. The recent run up in the oil price may stem from sanctions on Iranian exports and lost output as Hurricane Isaac shuts down production in the Gulf of Mexico, but don't be fooled into thinking this is just a short-term hiccup…


Huge forces are driving the oil price

First we have to look at the oil supply.

We recently noted how precious few investors are willing to fund oil exploration these days. The sector is deeply out of fashion. Yet we desperately need to find more oil. As recently as four years ago, the International Energy Agency (IEA) warned we'd need to invest a massive $20trn in exploration.

But it's not happening. Money is hard to come by in the financial markets today, and even if you can get a load of cash and can make a find, you run the risk of a greedy government coming in and grabbing your bounty.

Of course, the industry hasn't ground to a halt, but there's nowhere near enough exploration going on. And that's going to cause supply issues down the line. Sure, OPEC countries can increase supplies from time to time. But there's no doubt that reserves are dwindling. And supply will remain tight over the coming years. Then there's demand...

After the Fukushima disaster the Japanese switched off their nuclear generators. Germany has indicated it will do the same. And while these guys may be able to find some new ways of producing a bit of sustainable electricity, the burden will fall mainly on conventional fossil fuels.

Then of course there is the growing demand from emerging markets. Despite what you may read, these economies are still growing – and some at a very healthy lick. Just take China. For the most part, China's spent the last 20 years making stuff for the rich west to consume. Yet in the recently released five-year plan they're talking about doing it for themselves. That is, they're looking to use some their resources to lift the living standards of their own folk. Energy requirements will grow for decades to come.

Short of a revolution in sustainable energy, the oil price will only rise. Well, that's my take on it anyway. I totally see that new technology is helping to increase production, but I just can't see it keeping up with global demand.