Oil supply what's the real situation?

[birdman]

In the June 4, 2005 edition of The Economist, it tells the Chinese purchased more than 5 million cars last year compared to the 17 million purchased by Americans. The article goes on to say that next year they will surpass Japan to become the # 2 buyer of automobiles. Furthermore in just a few years they may be buying as many as five times the autos that Americans do and consume as much as oil as we currently do in half a decade.

And we think gas is high now.

According to the most recent US Geological Survey (done in 2000)http://pubs.usgs.gov/dds/dds-060/
there are 3000 billion barrels of oil left in the world. Total oil production in 2000 was 25 billion barrels. If oil consumption increases on average 1.4% (this does not consider the Chinese growth) the world's oil supply will not be exhausted until 2056. When you factor in their new appetite for cars, our oil supply could be gone in 15 to 30 years instead of the 50 projected. (I'll guess more like 25 to 30).

 

[TGregg]

Quote from birdman:

When you factor in their new appetite for cars, our oil supply could be gone in 15 to 30 years instead of the 50 projected. (I'll guess more like 25 to 30).

Problem is just that. Factoring in rising prices and what behaviors that will curtail and produce. It's not going to be where oil is $70 a barrel on Tuesday, and on Friday we're all out, even if the fatalistic fanatics are right for once in their lonely, miserable lives. If we are running out, the price in general will slowly climb, with plenty of moves up and down. We'll have plenty of both bulls and bears as roadkill on the highway to the future - just like always.

Meanwhile, higher prices encourage a reduction in demand and a search for alternatives. Just like always. You guys and your "It's different this time" - go buy some tech stocks or something. I hear GOOG's under $300.

 

[SteveD]

Maria has had some very interesting interviews with Lee Raymond that discusses this very topic. You should not be investing in energy if you do not know who he is.

OPEC does not tell the truth all the time, LOL. A lot of cheating among the members as you can well imagine.

I think the US should annex Mexico as the 51st state which would solve our illegal immigrant problem and go a long way with energy situation. They have a lot of oil but have a horrible inefficient Pemex.

SteveD

 

[Samson77]

Quote from Sparohok:

Samson, thank you, assuming you're not being sarcastic. You never can tell around here.

In terms of energy investing I am a big fan of Kurt Wulff and his web site www.mcdep.com. Another source I can highly recommend is the book "The Oil Factor" by Stephen and Donna Leeb. I read The Oil Factor recently and was shocked by the degree to which their recommended portfolio and investment stance matches my own. (Despite the title the book isn't just about oil.)

The one thing I can add to more directly answer your question is that I recently hedged much of my investment in oil producers with a short position in oil futures. At $60 I am no longer particularly bullish on oil in the short term. Any number of growth shocks to the world economy could bring oil back under $50 in the remainder of 2005. However I still believe that oil producers are significantly undervalued relative to the price of oil, hence the hedged position rather than just selling my oil stocks outright.

Martin

Sparohok

Thanks much appreciated good luck with those positions they sound very logical.

 

[dougcs]

Quote from TGregg:

Problem is just that. Factoring in rising prices and what behaviors that will curtail and produce. It's not going to be where oil is $70 a barrel on Tuesday, and on Friday we're all out, even if the fatalistic fanatics are right for once in their lonely, miserable lives. If we are running out, the price in general will slowly climb, with plenty of moves up and down. We'll have plenty of both bulls and bears as roadkill on the highway to the future - just like always.

Meanwhile, higher prices encourage a reduction in demand and a search for alternatives. Just like always. You guys and your "It's different this time" - go buy some tech stocks or something. I hear GOOG's under $300.

You make a great point. There a lots of ways to produce oil. Conventional oil is produced by punching a hole in the ground and pumping it out.

Non conventional oil includes: converting abundant coal reserves to oil via Fisher Tropsch process as practiced by Germany in WW2 and South Africa during apartheid. There are vast quantities of coal. Converting natural gas that is currently flared as a waste to oil has numerous active projects around the globe, eg-Qatar's/Shell's project, heavy oil, oil sands, and the list goes on and on.

These non conventional sources of crude have a couple things in common: very expensive and long lead times. The technology exists and no doubt will get more efficient. If the economics support them (namely high crude prices) they will be built and supply the oil the world demands.

DS

 

[cakulev]

Quote from TGregg:

Problem is just that. Factoring in rising prices and what behaviors that will curtail and produce. It's not going to be where oil is $70 a barrel on Tuesday, and on Friday we're all out, even if the fatalistic fanatics are right for once in their lonely, miserable lives. If we are running out, the price in general will slowly climb, with plenty of moves up and down. We'll have plenty of both bulls and bears as roadkill on the highway to the future - just like always.

Correct. Nobody knows what the price elasticity is.
A report on Friday showed China imported 2.45 million barrels of crude oil per day last month, down 18.3% from April and only equal to the average for all of 2004.
This doesn’t seem to me as unconstrained growth to me. China is already slowing down. Global growth is slowing down, not just because of oil.

 

[yabz]

According to the Economist , the world's proven oil reserves stand at just under 1.19 trillion barrels.

Over 60% of this oil is in the Middle East. Saudi Arabia holds sway over 262.7 billion barrels of oil or 22% of proven reserves, by far the biggest share held by one country. But at its 2004 rate of production, Saudi Arabia will exhaust its reserves before Iran, in second place, with 132.5 billion barrels. Iraq has almost 10% of the world's proven oil reserves; Kuwait just over 8%. Outside the Middle East,Venezuela and Russia each hold around 6%.

At 2004 production rates Saudi Arabia's oil will run out in 68 years. However Iraq, Kuwait and UAE have more than 100 years of reserves left.

 

[Samson77]

Well judging by the poll it seems like ET is as lost on this one as I am.

Thanks for all the great links people it's been a real eye opener.

Technically speaking we could not hold above $60 and even with the sell off today we barely dent this steep trend line on the daily so I'm still favoring longs.

 

[razorack]

What i cant understand is why everyone forgets what happened to crude price during the asian crisis. It only took the perception that world demand was going to fall (or the price was becoming too high due to currency devaluations in developing asian nations (indonesia malaysia korea etc etc) for the price to nearly halve. Have a look at the graph http://www.wtrg.com/oil_graphs/oilprice1947.gif

You dont have to be a genius to see that Chinas competititive advantage gets eroded the higher commodity prices go (labour makes up less of the cost of a given item) If this happens Chinese profits will be less, their growth will slow and the projections on their oil consumption will be too high. Lets face it the developed nations feel the impact of oil far less than say a new graduate to chinas middle class will. Hence Chinas demand for cars will fall etc.

Let us not forget that since oil hit $12 per barrel in 97 during the asian crisis, we have had Greenspan continually bailing out the world economy with excess liquidity (LTCM, Russian Bond crisis, Y2K, 9/11, ) It is not as if the last 8 years has been a "normal" cycle. The fact is we have had "super growth" accompanying the low rates /high liquidity environment. As Bill Gross points out here http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+July+2005.htm

"the limited capacity for real yields to decline from this point removes the largest and most potent pump from policymakers’ arsenals"

A return to economic cycles will be the bucket of cold water that is needed to be poured over the head of the world economy to make everyone realise that world demand does not ever go straight up for very long. The idea that "this time it is different" will finally be debunked and in the process analyst will be madly readjusting oil demand. Once this phase is over we will see oil back in the $30 range.

 

[murray t turtle]

Quote from razorack:

What i cant understand is why everyone forgets what happened to crude price during the asian crisis. It only took the perception that world demand was going to fall (or the price was becoming too high due to currency devaluations in developing asian nations (indonesia malaysia korea etc etc) for the price to nearly halve. Have a look at the graph http://www.wtrg.com/oil_graphs/oilprice1947.gif

You dont have to be a genius to see that Chinas competititive advantage gets eroded the higher commodity prices go (labour makes up less of the cost of a given item) If this happens Chinese profits will be less, their growth will slow and the projections on their oil consumption will be too high. Lets face it the developed nations feel the impact of oil far less than say a new graduate to chinas middle class will. Hence Chinas demand for cars will fall etc.

Let us not forget that since oil hit $12 per barrel in 97 during the asian crisis, we have had Greenspan continually bailing out the world economy with excess liquidity (LTCM, Russian Bond crisis, Y2K, 9/11, ) It is not as if the last 8 years has been a "normal" cycle. The fact is we have had "super growth" accompanying the low rates /high liquidity environment. As Bill Gross points out here http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO+July+2005.htm

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Also have a varient perception on ''oil bulls'', because of ;
ethanol,
soy deisal
solar,
wind,
olive oil,
natural gas,
nuclear,
electric.
wood.
hydrogen,
coal,
increased drilling in polar bear country
creative boys/girls, especially in free enterprize system!!!!!!!

However because of strong persistant trends of diversified oil companies, many of them are in alternate energy;
even if oil bubble breaks in half, many of the diversified oil companies
or focused oil companies with plenty of cash , could still be king.

William O'Neil's Investors Business Daily newspaper has plenty of homebuilders & oil/gas in top 100;
and top sectors also.

He that loveth wine & oil shall not be rich;
and there is treasure & oil in the dwelling of the wise -Solomon,trader king.