Jim Letourneau's Blog

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Daddy, Why Do Commodity Bull Markets End?

I'm fascinated by people who regularly accept technological advances in consumer electronics (ie. many friends tell me that Apple could have easily put a camera in the first generation iPad) but then believe in "peak oil". Technological advances have completely altered the North American natural gas landscape and the same will happen with oil. Between improved oil recovery techniques and shale oil advances, oil reserves (not resources) are being proven up in well explored areas that were previously thought to be tapped out.

For some reason, The New York Times chose not to portray the Eagle Ford Shale oil drilling boom as an environmental catastrophe. There are some pretty exciting opportunities for early investors. According to  Daniel Yergin “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

Throughout history, commodity bull markets have ended with stockpiles of previously scarce commodities. We're not there yet but the seeds of a commodity bust are being planted and it will be fun to watch them grow.