Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Devastating Oil Crisis Ahead?

Commodities / Crude Oil Dec 01, 2009 - 10:33 AM GMT

By: Joseph_Dancy

Commodities

Best Financial Markets Analysis ArticleJohn Hess, the Chairman of the US independent producer Hess Corporation, issued a warning last month to global governments claiming a “devastating oil crisis” looms large on the horizon if global action is not instituted. In a speech delivered at the Money & Oil conference, Hess said that once economic growth recovers, it is likely the world will return to the market conditions of one year ago:


Oil has moved to a demand-led market where supply is struggling to keep pace. The financial crisis of the past year has reduced demand by 2 million barrels per day, creating excess inventories and lower prices.

While this setback has brought us some welcome breathing room, I believe that it is only temporary. Once economic growth recovers, it is likely we will return to the market conditions of one year ago. The price of $140 per barrel oil was not an aberration; it was a warning. . .

The reality is that an oil crisis is coming that could prove devastating to future economic growth. Given the long lead times of 5-to-10 years from oil discovery to production, we need to act now to avert this outcome. . . In the interest of creating good energy policy, let us offer Truth Serum and establish the facts:

  • Fact No. 1: Hydrocarbons. Eighty-five percent of the world’s energy comes from hydrocarbons: 35 percent oil, 30 percent coal and 20 percent natural gas. While renewable energy will be needed and should be encouraged to meet future energy demand and contribute to reducing our carbon footprint, hydrocarbons will fuel the world’s economy for decades to come – and oil will continue to be at the forefront. Renewable energy does not have the scale, timeframe or economics to materially change this outcome.
  • Fact No. 2: Oil demand. Once the economy recovers, it is projected to increase by 1 million barrels per day each year. A key driver is world population, estimated to grow from 6.8 billion today to 9 billion by 2050, largely in the developing countries of the world. With a corresponding increase in living standards, hydrocarbon energy, led by oil, will be needed to support economic development. The other driver of demand growth is transportation, which accounts for fifty percent of oil consumption. . .

An interesting statistic to keep in mind: The U.S. has 1000 cars for every 1000 people; China has 10 cars per 1000. As China closes that gap, growth in oil demand will be relentless.

  • Fact. No. 3: Oil supply. We are not running out of oil. We have produced 1 trillion barrels so far and estimates are that we have about 3 trillion barrels remaining to recover – 2 trillion barrels of conventional resources and 1 trillion barrels unconventional, such as tar sands and heavy oil. The issue is not our endowment of oil resources. It is the world’s production capacity. Resource additions from exploration last replaced annual production in 1987. Part of the challenge going forward is that the easiest oil to access has been discovered. Costs are increasing for new barrels as producers explore frontiers such as the deepwater Gulf of Mexico and Brazil, where wells can be drilled in . . .

Oil field declines are estimated at more than 5 percent per year. That means we have to add at least 4 million barrels per day each year just to keep production flat. When you add this number to the 1 million barrels per day required to meet demand growth, we need an extra 5 million barrels per day each year going forward. . .

Given these facts, we need to communicate the following message:

(1) Hydrocarbons are here to stay.

(2) Oil demand growth will be unrelenting, increasing 1 million barrels per day each year.

(3) We are not running out of oil but growth of production capacity over the next several years will fall short of the incremental 5 million barrels per day each year that we will need to meet demand.

(4) We will ultimately be at risk of supply rationing demand through skyrocketing prices that will threaten economic stability and prosperity. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.
**********

We agree with his premise. For those who follow the industry, the tends in long term supply and long term demand growth in emerging economies raise concerns about the pricing and availability of sufficient crude oil supplies in the future. A large portion of our portfolio is currently invested in the energy sector.

Last month, due to global economic growth, Merrill Lynch raised their 2010 crude oil price forecast this week to $85 per barrel from $75 a barrel. They see global growth above 4% versus a decline in economic growth in 2009. Merrill expects demand for crude oil to increase by 2 million barrels per day to roughly 86.9 million barrels per day.

Energy analyst Neil McMahon of Sanford Bernstein Co. was interviewed on Bloomberg radio last month on the oil market. He forecast $100 a barrel prices within the next 18 months, then generally moving up from there. From an investment standpoint they recommend finding firms that are leveraged to oil prices, can grow production, and are flexible enough to find new fields.

The profile of firms that can meet the Sanford Bernstein benchmarks mean that they are mostly  recommending small producers, with high beta, which should outperform in this environment for investors looking for growth. Of course, investor strategy depends on an investors risk tolerance and objectives. Larger energy firms may perform well but smaller firms should perform much better. Many larger firms are having difficulties increasing production. 

Global consumption and production has been roughly 85-87 million barrels per day until the recent recession—when in fell back to roughly the 84 million barrel per day level. Goldman Sachs also raised their forecast recently for reasons noted above. The International Energy Agency last month increased global demand estimates to 86.2 million barrels per day in 2010, up from estimated average demand in 2009 of 84.9 million barrels per day.

The long term trends in the energy sector favor the bulls in our opinion.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2009 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in