Thursday, July 12, 2007

Bigger Trouble Than You Know.....



The Coming World "Oil Crunch"
In Monday's Sound Of Cannons, I described how crude oil has been locked in another upside rally, with prices moving above US$75 a barrel again recently and closing in on fresh all-time highs.
Well, I hate to revisit this same topic again so soon ... you'll get the idea that I'm beating an empty oil drum on behalf of the "peak-oil" crowd.
Heck, I don't enjoy paying over three bucks a gallon to fill up my soccer-Dad SUV anymore than the next guy. And I'm paying prices closer to US$4 a gallon at my local marina - which is seriously putting a dent in my offshore fishing trips!
So like many of you, I would rather not think about the ongoing oil squeeze. But just the other day the International Energy Agency (IEA) came out with a new report warning that the world is headed for an imminent oil supply "crunch," which forces me take note.
The report, quoted by the Financial Times states: "Oil looks extremely tight in five years time" and "prospects of even tighter natural gas markets at the turn of the decade." That's funny - I thought the crunch was already here!
According to the story the IEA is concerned "that supply was falling faster than expected in mature areas, such as the North Sea or Mexico." Meanwhile, production of new oil discoveries in places like the Russian Far East "faced long delays."
The IEA, which has repeatedly boosted its demand forecasts, now reckons that world oil consumption will grow to 95.8 million barrels per day by 2012 -- up some 11% over the next five years alone. Once again, fast growing China, India and other emerging markets are singled out as the primary culprits for increased demand. And of course the other side of this coin is that already stretched global supplies, leave prices just one way to go, higher!
The article points out that there's been a rule of thumb at work in oil prices in recent years: to approximate the price of oil, just "take the last digit of the year and add a zero: 2002 saw prices in the US$20s; 2003 in the US$30s"... you get the picture. Of course now that we're a bit more than halfway through 2007, prices are a bit north of US$75 a barrel - right on target - and climbing higher with the summer heat.
Somehow I think that Jim Rogers recent prediction of US$100 a barrel oil may come a lot sooner than 2010!

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