Estimating how much oil there is in the ground is a tricking business. The methodology to estimate how much oil is extractable by currently existing methods  produces inexact results. Since oil extraction technology is continually improving though, these results are often underestimates. But perhaps the biggest distortion that occurs when trying to estimate global oil reserves is the fact that many estimates go unaudited and are therefore subject to distortion by companies and national governments both of which are incentivized to overstate their oil reserves. Distortions in oil reserves lead companies to be overvalued and also perhaps make oil seem like a cheaper resource than it really is, which has profound implications for the energy market.

From a macro-perspective currently global oil reserves stand at 1.5 trillion barrels of oil which is enough to last the world at current consumption levels for about the next half century. This number though is significantly based on reserves from countries like Venezuela and Saudi Arabia which doubtless have vast oil reserves but whose oil reserves are not subject to international independent audit. Many countries in OPEC increase their reserves massively at somewhat arbitrary times and many analyst believe they have overstated their actual supplies. What this means for investors is that their is a possibility both that oil is undervalued because of overstated global supplies and that the oil industry itself has  a shorter future than many believe because the resource will be used up sooner than expected.

Examining the oil industry in the United States and particular oil companies shows a similar picture: overstated supplies which lead to inflated valuations. During the fracking boom in the United States many companies exploited a loophole in SEC rules and overstated their oil reserves. When the price of oil was still high these companies valuations skyrocketed, but eventually their "paper wells" disappeared and many companies went bankrupt. The SEC has been cracking down on the practice of overstated oil reserves, meaning investors in the oil and gas industry should ensure that the companies they are investing in are being complaint.

American oil giants like ExxonMobil (XOM  ) and Chevron (CVX  ) have seen their stock prices fall about 25% with the recent decline in the price of oil. Investors need to recognize two things about these companies: 1)These companies oil production infrastructure remains unmatched and and if future increases in the price of oil come these companies profits and stock market value will increase massively, especially if prices go back to their pre-recession 2008 peak. 2)The future of the oil industry is incredibly uncertain. 

It is unclear if oil prices will ever fully recover due to the weak nature of the global economy  and possibly decreasing demand for oil due to electric cars, ride-sharing, and increased use of green energy. The uncertainty of the future of the oil industry means investors should diversify their portfolio with green energy companies which have seen massive growth in recent years.

The renewable energy market in the U.S. is defined by massive growth for renewable energy companies and significant government subsidies for the industry. Despite this, the industry carries significant risk as well. SunEdison (SUNEQ  ) which saw massive growth in recent years just this year filed for bankruptcy that resulted from overexpansion. Brookfield Renewable Partners, (BEP  )which mostly produces hydroelectric power but is expanding into other renewable energy sectors has more than doubled the S&P500 in the last two years. SunPower (SPWR  ) which stock has taken a hit recently nonetheless possess some of the best solar power technology in the world. If the company can improve its balance sheet and seek out opportunities to expand, it could see massive growth in the next couple of years.

The energy market is in flux and developments in government policy and global supply which are very hard to predict will have significant effects of the valuations of all energy companies. Nonetheless energy companies stocks have massive potential and investors should not push them aside in their portfolio.