Wednesday, January 23, 2008

Oil Update

"Oil prices have disconnected from demand in rich countries, showing how the global oil market has become unmoored from some of the factors that steered it in the past. ... But now, oil prices are hovering around record highs even though demand is declining in the world's top industrialized countries", WSJ, 15 January 2008.

"Output from the world's exisitng oil fields is declining at a rate of about 4.5% a year, a new study concludes, meaning oil producers will have to find new production of 3.8 million barrels a day this year just to stay even. ... Yet the study's authors, Boston-based Cambridge Energy Research Associates [CERA], argue that their assessment supports a generally rosy view of the industry's future, given that new projects in the works will make up for the decline. ... The study strikes a more optimistic tone that do many heavy hitters in the industry", WSJ, 17 January 2008.

I think the CERA decline estimate optimistic. Time will tell. Oil's future demand growth will largely come from India and China.

7 comments:

Anonymous said...

It's awfully presumptuous to assume China and India will be driving anything in the future. How do you even know their economies will be growing? In addition, show me scientific evidence that oil in the ground has peaked. Oil reserves haven't grown because oil was $12 a barrel a few years ago. Land rights laws in many countries disincent investment and exploration. In addition, repressive regimes don't have access to much of the technology needed to enhance production or search for new oil. Nor, have they had any reason to until recently. You should really look at new discoveries in places like China and Brazil. Mexico announced their problem was due to incompetence and lack of investment by nationalizing the oil industry. Peak oil is in your mind until science supports it.

Independent Accountant said...

I can't predict the future, but that's how things look to me today. What does the term "scientific evidence" mean? What would you accept? I agree with you in part, the amount of oil "in the ground" is a function of the price. The higher the price, the more oil becomes "intramarginal". So? That's elementary price theory. That much of the world is not amenable to drilling only increases the oil price. Look at say, the California coast. Your disagreeing with me is what makes markets. I assume you're short oil futures. If not, why not?

Independent Accountant said...

Continuing. Two things affect the price of oil: demand and supply. Technological advances like: 3D and 4D seismic and horizontal drilling decreased oil's price. Government consumption subsidies increase oil's price. Government royalty and tax practices can increase or decrease oil's price depending upon which way they go. So?

Anonymous said...

Much of this demand is artificial. In two forms. When the global liquidity pool recedes, let's see what happens to oil demand. Not only from emerging markets but also from financial traders who have placed a tremendous premium well above fundamentals. Oil is likely going to $38.

Anonymous said...

4D oil drilling? Awesome. We're warping the space-time continuum to power the Escalades.

By the way, we need to get our comment ship in order over on Varones. That crap system loses half the comments.

Independent Accountant said...

Yes, 4D seismic. Schlumberger and a few other oil field service companies offer it. It is 3D seismic "over time". It's like time lapse photography and would be impossible without current computers.

Independent Accountant said...

As for $38 oil, see my 7 January 2008 comment on oil and the dollar.