Saturday, November 10, 2007

Top Ten Reasons That $100 Oil Won't Last

1. The amount of oil in storage tanks around the world is near all-time highs.

2. Supply below ground is abundant. The world's proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years.

3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago.

4. The cost of production is much less than $100 a barrel, about $4-30 per barrel. Oil prices can fall heavily without making any of this production uneconomic.

5. Iranian exports aren't likely to be cut.

6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew only 0.60%.

7. High prices are forcing governments to cut subsidies (Iran, China), which should curb demand growth.

8. On a relative basis — comparing the amount of energy bought with a dollar’s worth of oil with a dollar’s worth of natural gas — the price for natural gas is now about half that of oil, further suggesting that $100 oil is not sustainable (see chart below from today's NY Times).

9. A weak dollar doesn't justify $100 oil. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

10. Speculation is artificially boosting prices.

Source: Wall Street Journal article "Why $100 Oil Can't Float"



6 Comments:

At 11/10/2007 8:58 AM, Anonymous richard said...

Top 4 reason 100 US$ oil is just a start
- Oil production has been flat last two years
- Demand is increasing with 2% a year
- All fields that ever produced more than 1m bpd are in decline
- Exporting countries are increasing their domestic use while their export falls

 
At 11/10/2007 10:30 AM, Blogger Gregory said...

Let us try that again:
6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew only 0.60%.

 
At 11/10/2007 3:37 PM, Blogger DavidRowe said...

The 1.4 trillion barrels is based on non-audited claims by OPEC countries - they prohibit any independant checks of actual resrves. You see their production quota is based on a % of reserves so they have a vested interest in keeping their stated reserves high. As production is in decline just about everywhere else, we are betting the world economy of these claims.

One factor in "proven" reserves increasing is that OPEC countries mysteriously increase their stated reserves by about the amount they produce each year. So their reserves (and hence production quotas) remain stable.

At a world comsumption of 30B b/y even 1 trillion B will only last 30 years. Full production will not be maintained right until the end, it will taper off, reducing supply. At a 2% growth rate the situation is much worse.

The world tanker fleet is declining, new pipline and oil field development is stalling, and we are increasingly dependant on oil from politically unstable regions (e.g. Middle east, Nigeria).

The oil price will certainly bounce around, especially after some "demand destruction" of economies occur.

 
At 11/11/2007 4:11 AM, Anonymous Ian Random said...

I sincerely hope that it goes back down. Because I work with a conspiracy theorist between this and the sub-prime stuff he just won't shut-up. Thank God for ear plugs.

I suspect it's actually higher because some countries prohibit outside help or just kicked out companies. And mysteriously their production is going down like Venezuela. I imagine that their ability to add to reserves is suffering too.

I'm surprised OPEC has let it go on this long. High oil prices are a direct market subsidy, without political favors, to competing technologies. At this price everything is possible from liquefaction(CTL) to biodiesel. My current favorite being butanol.com because it behaves like gas perfectly. I'd be losing sleep right now if I were a Saudi.

 
At 11/11/2007 6:50 AM, Blogger juandos said...

"The world tanker fleet is declining, new pipline and oil field development is stalling, and we are increasingly dependant on oil from politically unstable regions (e.g. Middle east, Nigeria)."

Interesting but the International Herald Tribune ran this Bloomberg item last month: The record increase in oil prices and the unprecedented number of new tankers transporting crude oil is a stock market crash waiting to happen.

That, at least, is the growing consensus among analysts who say that industry titans like Frontline, Overseas Shipholding Group and Teekay have unsustainable valuations.

The Bloomberg tanker index has risen 44 percent in the past two years, even as freight rates have fallen 49 percent. The price of marine fuel, the biggest cost for ship owners, has climbed 44 percent in that time, reaching a record $446.50 a ton Wednesday. The number of tanker ships available is close to a record


Well shipping won't be a problem if the politicos get out of the way of our exploiting our own national resources..

 
At 5/13/2008 11:52 AM, Anonymous David Alexander, Los Angeles said...

This is not a supply/demand model since supply is controlled.
Oil producers in the business of MAXIMIZING the return on their asset. NOT supplying it at levels were prices decline.

And for those who think drilling in the USA will help.
#1 The goal is to CONTROL the reserves, not find them and then flood the market.
#2 Any oil found will be sold on the open market. It will NOT be sold exclusively to American consumers.
#3 Gas prices are set locally, yet the oil found will not be exclusive to the American market.

Get a clue.

 

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