Posted by: tristar3research | March 27, 2009

Before We Move to Alternative Energy, Secure Our Supplies

Okay, okay, the drop in oil prices from $148/bbl to the $30s was a SHOCK- well, not really, since there was massive speculation last summer and CME futures were heavily manipulated up. Remember the Goldman call for $200/bbl oil last spring?

We swear oil is going to $200, or $60, or it will go up and down!

"We swear oil is going to $200, or $60, or it will go up and down!"

Goldman analysts Arjun Murti, Kevin Koh and Michele della Vigna said prices have advanced more quickly than Goldman had forecast back in 2005, when it predicted a range of $50 to $105 a barrel as part of its “super-spike” oil theory.”We characterized the upper end of the band as more likely to be driven by geopolitical turmoil and that recession was a key risk to our view,” the analysts said. “In fact, oil prices have reached $100 a barrel without extraordinary turmoil, and the U.S. currently appears to be in recession.” “As the lack of supply growth and price-insulated non-OECD demand suggest a future rebound in U.S. gross domestic product growth or a major oil supply disruption could lead to $150-$200 a barrel oil prices,” Goldman said.

It turns out, SURPRISE, that the sharp decline in oil prices is leading to BIG CUT-BACKS IN PRODUCTION, which will in turn lead to sharp declines in reserve positions, especially among domestic producers. The NYTimes explains:

Sharp reductions in investments and low oil prices could curb future supplies by almost eight million barrels a day within the next five years, according to a study scheduled for release Friday, the latest warning that the world could face a new energy shock when the economy picks up. The report by Cambridge Energy Research Associates, an oil consulting firm, said that the potential drop in production capacity is a “powerful and long-lasting aftershock following the oil price collapse.” About 7.6 million barrels a day of future supplies are “at risk” of being deferred or canceled, like heavy oil or deepwater projects, and which could bring total supplies to 101.4 million barrels a day by 2014. Last year, the group projected that capacity would rise to 109 million barrels a day by then.

So OPEC points out that the pressure on developing new and less expensive supplies of energy is intensifying. NY Times says that we’re over a barrel on the oil price conundrum:

OPEC producers recently curbed supplies to prevent a price collapse… but warn that oil prices remain too low to sustain increased investments and warned of a possible price shock when the demand for oil picks up again in coming years. As many as 35 new projects in nations belonging to the Organization of the Petroleum Exporting Countries may be delayed by 2013. “I have often described unsustainably low oil prices as carrying the seeds of future spikes and volatility. In a low-price environment, the trend is often to focus on survival instead of expansion,” Ali al-Naimi, the Saudi oil minister, said recently. “If we place a low priority on preparing for the future, that lack of action can come back to haunt us through supply shortages and another round of high prices.” The same concerns are also worrying economic experts from consuming countries, including the International Energy Agency and the International Monetary Fund. “The lower that oil prices drop now and the longer they stay low, the greater the negative impact on future supply,” John Lipsky, the first deputy managing director of the I.M.F., told an OPEC conference in Vienna this month. “In other words, today’s low prices could be setting the stage for another price run-up in the future.”


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