As the price of oil remains at or near record highs, many analysts, including those at Lehman Brothers and Goldman Sachs, predict even higher prices to come. Everyone knows this is bad for the consumer, at least in the short run, but what about the oil companies? Aren’t they making record profits? The CEO of Total S.A. (TOT), the French “Supermajor” oil company, had this to say (from Reuters):
“There is a problem of supply and demand and this is why the price is high, even if it is exaggerated by speculation,” Total Chief Executive Christophe de Margerie told reporters on the sidelines of an energy event in the Qatari capital.
“Definitely we don’t see it as good news, not for producing countries, companies or consumers. It is going too fast.”
Once oil becomes sufficiently expensive, a bevy of alternative energy sources become profitable to explore. That creates an increase in supply which eventually makes the new energy sources affordable and practical. So while companies like Total have seen fantastic run-ups in their stocks in the past several years, the higher oil prices go, the sooner we will transition from fossil fuels to other sources of energy. If oil were still $50/barrel, do companies like First Solar (FSLR) make headlines (and money for their investors)? We’re not so sure and neither are the oil companies, which is why they’re worried.