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July 8, 2008
What is happening with oil prices?
Big Gav and Anawhata over at The Oil Drum down under continues to publish the most data driven clear headed analysis I have seen. Read this post to get up to date.
some snippets:
The hard facts
* The world price of oil in US dollars has doubled in the last year (June 2007 to June 2008) from US$67/barrel to over US$135/barrel
* The world price has gone up by 6 times in 6 years, from US$20/barrel in 2002 to over US$135/barrel by mid 2008
* With hindsight we can see that the great cheap oil era lasted 16 years from 1986 to 2002 when the price was mostly in the range $15 – 25/barrel, coming off a $39 peak during the "oil shock" of 1980 (equivalent to about US$95/barrel in 2008 money). The short sharp spike seen at the end of 1990 was due to the first Gulf War.
Lead times for new industry infrastructure are typically 3 to 10 years. All new mega-projects on the production side are well known out as far as 2012, and few seem likely to boost global supply by enough to overcome declines in old oil fields. See the comprehensive listing of oil megaprojects at http://en.wikipedia.org/wiki/Oil_Megaprojects/2008. Note that major oil projects are developing a history of running late, often years late, as they encounter challenging technical difficulties operating in extreme environments like deep ocean or freezing Arctic conditions.
Rapid demand growth is often blamed for rising prices – demand growth in developing countries, particularly China and India, and in key oil supplying nations such as Saudi Arabia and Russia. But the decline of mature oil fields throughout the world is an even greater source of demand for new oil supplies than the growth of end user demand. Declining fields are losing 5.2% of total oil production per year thus requiring about 3.5 million barrels/day of new oil each year for the global oil supply to stay the same. (Nobuo Tanaka, International Energy Agency) http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=267. Recent annual growth in end user demand, on the other hand has not exceeded 1.5 million barrels/day.
Folks we are going to $200-$300/barrel one way or another. Fasten your seat belts.
Posted by Martin at July 8, 2008 10:08 AM
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