ANTIESTABLISHMENTARIAN

2009 will be a year in which oil is again making headline news.

After a long holiday hiatus, not only from posting, but from even thinking about the terrible economic mess we’re in, I’m back at it again. I definitely needed the rest from so much bad news.

Oil is back in the news again, if only because the price is rising again during a recession. Is it the Palestinian crap again, or is it something else? No way of knowing, really, at least not yet.

The proverbial story of the pendulum is that when it swings too far one way, it will go too far in the opposite direction, and boy, it sure has done that, though many prognosticators insist that things are just getting back to normal, the way things should be with $10 oil and 25 cent gas. Don’t think so, folks. It’s still too early yet to have any good data on the supply/demand situation, though its clear that the big drop in US demand is reversing due to the price of gasoline falling 66%.

Its my contention that people will turn down their thermostats long before they will curtail their driving. In fact, driving may well increase as a cheaper form of recreation, so I’m not convinced that the economy will stifle demand all that much. Meanwhile, I’m much more concerned about declining production and exploration that is bad news for the future.

“The world faces a crude supply shock if oil prices remain below $70 per barrel, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah said on Wednesday arguing that lower prices would discourage investment in new capacity.”

“A price of $70 per barrel is needed ‘to avoid any (supply) shock in the future,’ he said, explaining that this price level should be sufficient to encourage companies and oil producers to continue investing in capacity expansion projects. ‘Below $70, it will be non-economical to invest in the hydrocarbon sector,’

Al Attiyah told the Gulf Petrochemical and Chemical Association (GPCA) forum. ‘Today there is no cheap oil’ he added.”

Meanwhile, rapidly falling exports poses more of a threat than production as producing nations continue to consume more of their own production rather than export it. Russion exports were down 5% for 2008 and 2009 is likely to be the last year that Mexico exports any oil, once our second largest supplier.

The World Energy Outlook 2008 (WEO2008) was released last week and it contains updated studies and forecast from the International Energy Agency (IEA). One of their conclusions is that six new Saudi-Arabias is required until 2030, corresponding to 64 million barrels per day, in order to meet demand and counter decline. Also they see increasing average decline rates of world oil production, mostly due to a switch to smaller fields as the old giants mature.

Does anyone believe that six new Saudis will be found in the next twenty years, when nothing like it has been found since (1920’s). Not even close. The next big oil shock will be declining exports, not production, and the sad thing is that no one is taking this reality into account other than a few voices crying in the wilderness.

As always, we do nothing until a problem develops into a disaster.