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Skrebowski on Oil Prices
As I’ve previously written, I think British analyst Chris Skrebowski has as good a handle on likely future supplies and demand for oil and gas as anyone in the West. Among other things he keeps a record of planned production of all major new oil fields as they are announced, giving us a good look forward for about 5 - 7 years at oil supply.
Skrebowski is Consulting Editor of Petroleum Review. In the July issue he says the following about the price of oil and where it might be headed in the medium term:
“Economists tell us that steadily rising prices mean inadequate supply. And that is what we are seeing…”
He points out that slowing OECD demand is offset by rising Chindia demand and more than offset by demand in oil exporting countries. He warns that the expectation of reduced oil subsidies in some developing economies may not spell relief because oil demand has proven inelastic over a wide band in many European economies historically.
“So, if demand is being driven by the non-OECD world and supply remains difficult to expand, then the upward price trend is set to continue. It has already been observed that the real role of high prices is, first, to determine whether the tankers turn East or West after leaving the Arabian/Persian Gulf, and second, to destroy enough potential demand as to ensure supply demand balance.”
I would simply repeat an observation I made last year in regard to Skrebowski’s point about whether the tankers turn East or West. When that becomes the determining battle for existing oil supplies - rather than the slow ongoing destruction of demand by the less wealthy countries and individuals that we have been seeing so far - it will be like the bidding battles for waterfront real estate. There is really no rational price that exists. It’s simply economic muscle vs. economic muscle and the poor and middle class are not even at the table. Vis: 2014
Tags: peak oil energy investments
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5 responses so far ↓
1 paultaut // Jul 19, 2008 at 5:23 pm
Great article which underscores the probability that there will be skirmishes and possibly small battles waged over who drills where.
Since the Outer Continental Shelf is considered to be in International Waters, it will be interesting to see what Congress does when other nations drill there ala Cuba off the Coast of Florida.
The Internet has allowed the developing world see what the developed world has. Pandora’s box has been opened and cannot be closed again.
2 Nawar Alsaadi // Jul 20, 2008 at 2:03 am
This is exactly it, I actually just wrote a similar response on seekingalpha, the writer was talking about the likely burst of the oil bubble due to demand destruction, I believe many observers are considering demand destruction as a secondary consequence to high oil prices, they fail to see that demand destruction is the primary goal of rising oil prices, since this is the only way demand and supply can be balanced in the absence of adequate supplies, thus any dip in oil prices will remain short lived, as rising demand will quickly push prices higher back into balance at the elevated range.
As future supply remain constrained, and demand continue to grow in the developing world and the oil exporting countries, indeed the risk to oil prices remain skewed to the upside.
Regards,
Nawar
3 KV // Jul 20, 2008 at 7:05 am
JPMorgan’s Kelly Says Drop in Oil Price Shows `Bubble’ July 18 (Bloomberg) — David Kelly, chief market strategist at JPMorgan Funds, talks with Bloomberg’s Matt Miller and Tom Keene from Newton, Massachusetts, about the price of oil, financial industry stocks and the U.S. economy. (Source: Bloomberg) Watch
http://www.bloomberg.com/news/av/
We consume 25% of oil produced in the world. There is something called “demand elasticity” in ECON 101. Another factor to consider “Alternative Sources of Energy”.
I think we are tuned to doom and gloom talk, so that we can all make money. See if there is anybody here is shorting oil!
Everybody knows if we do not conserve, improve efficiency, employ alternatives in energy and lifestyle we will pay for oil.
Now only if we inflate the dollar faster than oil price increase and increase income faster that oil price increase we would not worry about anything, except by bigger computers (128 bit processing) to keep track of all those zeros.
4 paultaut // Jul 20, 2008 at 9:23 am
Unfortunately, the Bavarians tried the same thing in the 20’s.
By inflating the dollar faster, we not only will pay more for oil but will toss in all other imports as well. Since our economy is based on services rather than manufacturing, the trade gap will skyrocket. The inflation of the 70’s will seem tame.
Try to think ahead of the pack. The Doom and Gloom scenarios are meant to get others involved in potential solutions. But until the Public really realizes that they have to restructure Congress, it won’t matter.
By raising the levels of Public awareness to the Doom and Gloom scenarios, We may yet be able to avoid some of them before we find ourselves living in one of them.
Making light of the situation may alleviate ones own anxiety, but does not serve the whole.
5 Robert Essian // Jul 20, 2008 at 11:25 am
Jim, I find value in all comments from your sight. In addition to Mr. Skrebowski’s invaluable information provided to us I had the plessure of reading an article from “The Oil Drum” this morning. It was a lecture from Prof. Richard K. Lester of MIT. It’s theme is consistent with what I believe is the inevitable course our Country will find itself on. I hope you don’t mind my refering it to your readers. Thank you
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