Is It Okay to Buy Oil?

The Deepwater Horizon disaster reignited an ethical quandary of mine. Namely, is it okay to buy oil? I'm not talking about buying oil for home heating or gasoline for the car. I'm talking about oil as an investment.

A few years ago, some Wall Street investment houses created vehicles called Exchange Traded Funds, or ETFs. They were basically a way to buy various real physical materials - commodities if you will - through the stock market. Gold, copper, oil, silver, all sorts of commodities became available for purchase and sale the same way you'd purchase and sell stocks and bonds. These ETFs are regulated and insured by the Government (unlike some investments we've heard about lately). In short, they are not a bad way to diversify your investments.

So here's my quandary.

Investing in oil seems like such a smart, and yet such an unethical, thing to do. I am not talking about investing in oil companies, which, with their profit-driven and misery-inducing corner cutting, make a clearly unethical investment. I would just be buying the oil, the hydrocarbons. There is a lot of destruction and misery associated with oil. But the same could be said of a lot of other things we buy - toys, computers, chocolate.

What drives me to this question is that I'm a believer in Peak Oil. I don't believe we are going to run out of oil. But I believe strongly that oil is just going to get more and more expensive over the coming years. (I think this trend is currently being masked by weak economies, which are weak partly because of the 2008 oil price shock.) So from that perspective it makes a good investment. Oil prices are going to go up. Furthermore, since I live in the US, and oil is priced in US dollars, then, should the price of oil rise, the value of the dollar would fall accordingly, an inflationary trend that will likely not have as much of an impact in other places. I don't need to be wealthy in retirement. But I would like to be solvent. And if I am doing my personal and professional best to minimize climate change and reduce energy consumption, why shouldn't I be allowed to profit by acting on my conviction that Peak Oil is on the way?

Some people have told me that we should discourage the production of oil by buying as little as we can. I concur with that. And buying oil as an investment seems to contradict that motive. But if I were to "buy" the oil, I would be taking it off the current market and, at least incrementally, driving up the price and making the next person think twice before driving their car, boat, or RV. So, almost counterintuitively, investing in oil could be a positive force for transition away from a fossil fuel economy.

So there I sit. I missed the last big rise in oil prices because I couldn't resolve this quandary. (It went from the neighborhood of $35 per barrel in early 2009 to around $80 per barrel earlier this year. You do the math.) The price is now retreating to under $70 per barrel, but I don't doubt that higher prices are ahead.

What should I do?

Paul Birkeland lives in Seattle, WA, US, and develops Strategic Energy Management Systems for government, commercial, and industrial organizations through Integrated Renewable Energy.