Comment 13595

By Ryan (registered) - website | Posted October 31, 2007 at 13:53:13

Hi ventrems,

Political instability is certainly not helping, but the underlying supply situation is the real problem. Demand has grown steadily over the past half decade, but supply peaked in 2003/04 and has remained flat ever since.

Exploration and drilling are way up, but total production remains flat.

Venezuela had a big dip in 2003 but has restored its production since then. Even Iraq's production is back up to what it was before the Iraq invasion. Note also that both countries, like the US, Russia, and Iran, are long past their production peaks and declining slowly but steadily.

Until recently, Saudi Arabia was the world's swing producer and could 'open up the taps' at any time to make up for shortfalls elsewhere. However, it also appears to have passed its production peak, with output actually falling over 2006 despite very, very strong price (and political) signals to increase production.

There's simply no spare capacity left. North Sea production is plummeting, Mexico is past peak and declining, Kuwait has only half as much oil as it had previously claimed, and so on around the world.

Finally, the new oil supplies coming on stream are all sour, heavy, hard to reach, and slow to extract. There's a reason Alberta's Tar Sands are booming: the easy-to-reach oil is almost gone.

As Jeffrey Rubin, CIBC's Chief Economist, recently pointed out, "You know you are at the bottom of the ninth when you have to schlep a tonne of sand to get a barrel of oil."

Permalink | Context

Events Calendar

Recent Articles

Article Archives

Blog Archives

Site Tools