Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Is a Stock Market Crash Imminent or Does this Stock Market Bull Still Have Legs - 25th Apr 18
Gold Price Focusing on May Cycle Bottom - 25th Apr 18
Cash “Vanishes” From Bank Accounts In Ireland - 25th Apr 18
Is the Malaysian Economy a Potemkin Village - 25th Apr 18
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Crude Oil Realities

Commodities / Crude Oil Jun 18, 2010 - 05:01 AM GMT

By: Puru_Saxena

Commodities

Best Financial Markets Analysis ArticleWithout a doubt, the oil spill in the Gulf of Mexico is an environmental disaster.  Unfortunately, as far as the global economy is concerned, Mr. Obama’s six-month moratorium on new offshore drilling is an even bigger disaster. 

Remember, the supply of crude oil is already struggling and in order to offset the ongoing depletion, the world desperately needs to find new oil-fields.  Thus, by stopping new exploratory drilling in the Gulf of Mexico, the US establishment is wasting precious time.


Look. Crude oil is the lifeblood of the global economy and it is notable that over the past decade, most of the new oil-fields have been discovered offshore.  Today, an increasingly large proportion of crude oil is produced from offshore fields, so banning new exploration in the Gulf of Mexico is a bad idea. 

In a recent interview, the International Energy Agency’s (IEA) Executive Director – Mr. Nobua Tanaka opined, “The future potential for oil supply is offshore in deeper water and in the Arctic, so if offshore investment is going to be slowed down, that is a concern.” He added, “We have to learn from the accident and we need a good supply from offshore in the future.” 

For the first time ever, we are in total agreement with the IEA.  After years of research, we know that ultra-deep offshore oil is our only hope to combat ‘Peak Oil’.

Yes, the Deepwater Horizon incident is an environmental tragedy but we should be realistic here. Given the unbelievable complexities of offshore oil exploration and production, the occasional accident is bound to happen.  So, instead of punishing the energy industry, we should in fact remain grateful that such accidents do not happen more frequently.  The truth is that the energy industry produces 86 million barrels of oil per day and it does so from extremely complex oil-fields.  Therefore, rather than pointing our fingers towards the energy companies, we should all be thankful that such disasters are rare and isolated events. 

In any event, the recently announced moratorium on new offshore drilling will further reduce the supply of crude oil.  More importantly, if Mr. Obama’s administration gets very tough with BP, then the other oil companies may think twice before attempting to tackle technologically-challenging projects.  After all, if the risk of political backlash was high, why would any oil company take on a complex project in a new frontier?  So, whichever way you look at it, the recent developments in the US are likely to depress future oil-production.

It is worth noting that in its ‘World Energy Outlook 2009’ report, the IEA confirmed that in order to meet energy demand in 2030, the world needs to invest a staggering US$26 trillion over the next 21 years!  Well, given the reluctance of banks to lend, the suspension of exploratory offshore drilling in the Gulf of Mexico and the growing political angst, it is clear that capital spending will fall short of the required amount.  Undoubtedly, this lack of adequate investment will further dampen future supplies.

As far as global oil usage is concerned, it is noteworthy that demand is on the rise again.  Figure 1 shows that over the past twelve months, worldwide consumption of oil increased by roughly 500,000 barrels per day.  This is an impressive feat when you consider that oil consumption in the developed world is still under pressure. 

Figure 1: Global oil-demand is rising

Source: Ed Yardeni

Whether you like it or not, oil demand is surging in the developing world and this trend is likely to remain intact.  Despite the economic problems in much of the developed world, the developing nations are burning more and more oil for the following reasons:

  • Heavy government subsidies
  • Extremely depressed per-capita consumption levels
  • Expanding middle-class
  • Growth in automobile-ownership
  • Robust industrial activity and rising domestic consumption
  • Massive public-sector spending on infrastructure (railways and roadways)

It is our contention that none of the above factors are likely to disappear anytime soon.  Moreover, when you take into account the size of the population in the developing world, it becomes clear that if the supply permits, worldwide demand for energy will continue to rise for decades.

If you are still sceptical and have any doubts, Figure 2 should put them to rest.  As you can see, the combined oil-consumption in China and India is at a record-high.  Today, these nations’ combined oil-consumption comes in at roughly 12 million barrels per day (14% of global usage) and what is really astonishing is the fact that demand has doubled over the past decade! 

Finally, it is worth noting that over 2.3 billion people reside in these two Asian nations and most of them still do not own automobiles. So, as these people climb up the prosperity ladder, demand for energy in these two countries will continue to appreciate.

Figure 2: A third of the world is thirsty for oil

Source: Ed Yardeni

Bearing in mind these facts, one can safely state that demand for oil will continue to rise in China, India and other parts of the developing world. More importantly, given the sheer number of people in Asia, Latin America and the Middle-East, the demand growth from these developing countries will most probably offset the declining demand for oil in the developed world.

In summary, apart from short-term setbacks during recessions, global demand for oil will continue to rise.  On the other side of the ledger, the ongoing depletion, lack of new discoveries and cutbacks in capital spending will put a firm lid on oil supply.  Last but not least, when you take into account the ongoing debasement of paper money, it becomes obvious that the price of crude is set to rise, perhaps remorselessly.

After considering all the data, we maintain our view that as long as the global economy is in an expansionary mode, the price of oil will surprise to the upside and top-quality energy companies will announce outstanding operating results.  Accordingly, every investor should consider allocating some capital to the energy complex.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets.  In addition to the monthly report, subscribers also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena

Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients.  He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2010 Puru Saxena Limited.  All rights reserved.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Mandy Meikle
21 Jun 10, 11:15
ultra-deep will not combat peak oil

You say that ultra-deep offshore oil is our only hope to combat 'Peak Oil'. Peak oil refers to the peak in production of conventional oil - it cannot be combated. The thing missing from most peak oil arguments is 'net energy' (http://mandymeikle.wordpress.com/2010/06/11/net-energy-in-a-nutshell/). The energy returned from conventional oil has been falling since the 1930s - from 100:1 (i.e. 100 units of energy out for 1 unit in) to as little as 3:1 from low returning fields today.

Unconventional oils (tar sands, ultra-deep etc.) have similarly low energy returns - we put more energy in to get each barrel out, leaving less energy available to do work with in society. Technology uses energy, it does not create it.

It's a big mistake to assume that ultra-deep reserves are doing anything other than delaying the inevitable move away from oil and the associated reduction in energy demand. Nothing can replace the net energy returns we got from the light sweet crude of the 20th century. We have to get smart and provide our needs (i.e. food, sanitation, heat & homes etc.) with much less energy - delay only makes it harder to do.


Shelby Moore (author of "End Game, Gold Investors Destroyed")
21 Jun 10, 16:47
More EROEI nonsense

My rebuttal to the prior comment "ultra-deep will not combat peak oil" follows.

1) The fact that we are pulling oil from 18,000 ft below sealevel (13,000 ft below seabed) means that oil is not a fossil fuel and is in fact an endless stream of oil generated by heat and pressures inside the earth. How could dead organisms get down that deep?

2) There is no way you can tell me that is takes billions of barrels of oil energy to place a 21" diameter bore and casing into the earth 13,000 ft and build a aircraft carrier size rig up on top. Nonsense. Just use your common sense dude, and stop listing to all the propaganda from the media who want to blame this coming monetary crisis on a fiction called "peak oil" (just as they lied to us about Global Warming, google "Climategate"), and see the temperature/CO2 charts near bottom of this post:

http://goldwetrust.up-with.com/knowledge-f9/book-ultimate-truth-t148.htm#3159

There is a very simple explanation for the Hubbard curve, and simply that it became cheaper to produce oil outside the USA. Simple economics. And if there is any world peak and decline in production (there is not yet, only projections), then it will be because of mis-allocation of capital due to the failure of the Ultimate Marget Regulator:

http://www.marketoracle.co.uk/Article20263.html

But people are too stupid, and they fall for the misdirection of blame fed to you by TPTB:

http://goldwetrust.up-with.com/health-f5/preparing-for-coming-crisis-t41-45.htm#3254


Shelby Moore
21 Jun 10, 18:37
Peak oil will be caused by new energy paradigm

Eventually the declining EROEI of oil production, will be displaced by a more efficient energy source, such as nuclear. But that will be a good thing.


Post Comment

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

6 Critical Money Making Rules