Investing Beyond $100 Oil: Part I
The significant gains we’ve witnessed in certain energy stocks are nothing compared to the gains we will witness as the next energy crisis comes into full effect. - Chris Gilpin
In a recent article, Is $100 Oil Cheap?, Casey Research Contributing Editor Chris Gilpin discusses the rapid decline of the world’s giant oil fields and what it means for your oil and gas investments. He begins with the recent shift in interest from “easy oil,” or conventional resources, to unconventional oil:
“Simply put, the Earth is running out of that magic combination of oil that is both high quality and cheap to extract. Twenty years ago, a dozen fields produced a million or more barrels of oil per day. Now there are four, and one of them, Mexico’s Cantarell in the Bay of Campeche, is collapsing.”
The effect of production declines for easily accessible conventional oil is evident in recent crude price increases. According to the Associated Press, estimated world production rates are currently at around 85 million barrels per day (BPD), while the U.S. Department of Energy (DOE) figures indicate that consumption is approximately 85-86 million BPD. Translation: If these figures are correct, demand is nearing or exceeding production capacity. Production gaps caused by events like hurricanes or pipeline bombings could drive demand beyond supply, forcing the world to deal with shortages or delve into emergency stockpiles.
In addition, future demand projections add considerable concern to the situation. In its 2007 World Energy Outlook, the International Energy Agency predicts that demand will rise 55% between 2005 and 2030 at an average annual rate of 1.8% per year. “We are experiencing high oil prices today and if actions are not taken in years to come, we can see a supply crunch which is not good news for anybody and it may end up with very high prices”, IEA Chief Economist Fatih Birol told Reuters.
Tomorrow’s post will cover Chris Gilpin’s thoughts on where oil prices are headed and how to invest for favorable returns.
Published Monday, December 10th, 2007 at 6:00 am and filed under Industry News.