Disaster = Profits

As the attempt to stem the oil leak continues in the Gulf of Mexico and the environmental disaster spreads, it is no surprise that the shares of BP, Transocean and other closely involved companies are taking a hit. This disaster will cost them dearly in compensation claims and government penalties, and the amount is unpredictable; markets hate unpredictability, and invariably punish companies faces large uncertainties in their revenues and expenses.

Aside from the specific fallout from the disaster, the implications for the energy sector are bullish. There is of course an immediate emotional response, even among large and small investors, to exit companies involved in petroleum exploration and production beyond those directly involved in the Gulf spill. Some of those sentiments are well founded since many companies will be negatively impacted by Obama's order to halt offshore drilling.

But from a global perspective this is all quite bullish due to basic economics. All of these reactions are serving to reduce current and future supply from what were until now reliable and predictable sources. Yet our economies and personal habits do not so easily shift gears, therefore demand continues unabated. This is economics 101: reduce supply in the face of steady demand causes an increase in price. This means we can look forward to higher global crude oil prices (and their refined products) and higher natural gas prices in North America (a more regional market due to transport constraints).

Couple this with the forecast of a more severe hurricane season and you get quite rosy possibilities for oil and gas investments that are far away from the Gulf of Mexico. It's alright to feel a little bit uncomfortable with the idea of profiting from the disaster, but do consider profiting in the short to medium term due to supply constraints. Canadian companies are well-positioned to do well in this scenario.

I don't feel any contradiction in being environmentally minded and investing in the oil and gas sector. It is possible to reduce one's own consumption while profiting from the consumption of others.