Quamnet:

Our planet is facing a severe energy crisis, however not many are paying attention. I find it amazing that rather than focus on the very real threat of ‘Peak Oil’, the majority of investors seem to be worrying about the ongoing credit crisis.

My comment: I’m not surprised as the sheeple media overload and lack of critical thinking by "analysts" is nothing new.

Over the past few months, the price of crude oil has dropped sharply due to forced liquidation in every asset-class. Unfortunately, this decline has convinced everyone that the oil ‘bubble’ has burst. Every day, we hear about the usual ‘demand destruction’ myth and people are now convinced that the days of expensive energy are behind us. However, nothing could be further from the truth!

My comment: The demand destruction argument is funny. If demand drops by 6% and supply drops by 9% (IEA estimate), oops prices go up even if economic activity is contracting.

Now, to put the current depletion rate of 6% into perspective, in 10 years time, we would require an additional supply of 40-45 million barrels per day and this is a conservative estimate! In other words, over the next decade, we would somehow have to find new supply to the tune of nearly half of our current output just to meet today’s demand. Now, I am not a petroleum geologist but even I can see that this will be a Herculean if not impossible task!

My comment: As most of the reserves are under the control of NOC’s the normal economic supply/demand feedback loops will not necessarily play out by the book. Quite a few of these oil exporters rely on their national oil companies as milk cows for the payment of social services costs and not for reinvestment into their oilfields. This will only exacerbate the supply issues in outer years.

Whether you like it or not, the global economy is heavily dependent on energy. Over the past 20 years, world GDP and oil production growth rates have tracked each other closely. Whenever ample oil gushed through the pipelines, the world’s economic activity picked up. Conversely, shortages of crude caused world GDP to contract. For instance, world GDP dropped by 3% due to the 1973 oil embargoes causing a global recession.

As fuel shortages emerge in the near future, we will see severe economic problems and a contraction in global GDP. And even if OPEC is able to ramp up production, it is likely that its member nations will cut back on their exports so they can save more oil for their own people.

My comment: As I have said before this pullback in oil prices is setting us up for a long term increase in oil prices above the recent highs and a knock on effect of higher stock prices for oil producers.

John Polomny
The Real Deal