Crude oil prices have climbed in the last 48 hours. But at around $97 a barrel the black goo is still down $50 from its all-time highs of July.

Energy and oil expert Byron King says this fall seems less severe when put in a longer-term perspective; crude oil prices are still up around $20 from this time last year.

Byron says a terrible outlook for the US dollar and dwindling supply will ensure oil remains on a long-term uptrend…

This from The Daily Reckoning:

Despite the lack of good news, for the past two months, the dollar has been strengthening. The euro, in turn, has been weakening as Germany and France have slid into recession. Pretty much in tandem with the rising dollar, the prices for oil and natural gas have been falling. And prices for precious metals have also been declining. It’s devastating the stocks in the Outstanding Investments portfolio.

And what’s going on with the price of oil? The other day, someone sent me an e-mail asking about the “plunge in oil prices.” Plunge? Not quite. Oil has not plunged. Or at least it depends on your time frame.

This time last year – September 2007 – a barrel of oil cost about $80, and rising. I remember being in Houston in October 2007 – sitting about ten feet from T. Boone Pickens and his wife – when oil crossed the $90 mark for the first time. Pickens commented, “We’ll see $100 oil before we ever see $80 again.”

T. Boone Pickens was right.

OK, I know what people are talking about. Back in the spring and summer, oil ran up in price. Oil crossed $100 early this year and kept rising. By July of this year, oil traded for over $147 per barrel. At the time, I said that oil was “rising too far, too fast.” I said that a lot of things in this world stop working when oil gets to about $130 per barrel. And I also said – on Fox Business News one early morning in June – “Oil OUGHT to pull back to around $100 to $110 a barrel.”

In the past two months, the price of oil has fallen by $50 or so. But that’s after more than doubling in the past year. So the recent price retreat is not a plunge. It’s just a correction within a long trend of rising prices for energy.

Meanwhile, almost all of the world’s largest oil fields were discovered over 30 years ago and have been lifting crude oil for 30, 40 or more years. So crude oil output from many of the world’s oil fields is either flat (such as in Saudi Arabia) or falling (such as in Mexico).

Even Russian oil output is dropping this year. No less an authority than the head of Gazprom recently stated that oil should sell for $250 or more per barrel.

Closer to home, let’s take a quick look at Mexico. Crude output from Mexico’s Cantarell oil field – the third largest in the world – is falling at its fastest pace in 12 years. For the past two decades, Petroleos Mexicanos (Pemex) has badly underinvested in field upgrades and new exploration. So Cantarell oil output has fallen 34% within the past year.

Indeed, Mexico may cease to be an oil exporter as early as 2010 and, in all likelihood, no later than 2012. In all candor, even the “lack of investment” argument holds a large element of spin. It may well be that no amount of new investment can reverse Mexico’s oil output decline.

Along these lines, I surely do not envy the next U.S. president. One of these days, the morning National Intelligence Brief will begin, “Mr. President, we have some really bad news about Mexico’s oil exports to the U.S. Pemex told us that within the next two months, it just can’t deliver the oil that we’re expecting. And none of the other oil suppliers in the world can begin to make up the difference.”

Yet in the face of all this, the market is currently selling off oil and other energy players. 

So how do we deal with this? I hate to see what’s happening to the Outstanding Investments portfolio. It’s painful to watch such great companies decline in value. But I also have to keep my eyes on the future.

And what does the future hold? The dollar will weaken, what with all the new credit being created to bail out banks, and probably the automakers, and everybody else with a hat in their hand, it seems. And the energy and resource plays are going to stage a comeback. Of that I am convinced.

Source: Buffalo Jumps