Oil and Gas Journal:

The third observation is that decline rates could curtail supply quickly. Past oil-price collapses have been associated with a sharp increase in the decline rates observed in mature basins. Using past production curves as a proxy, Deutsche Bank estimates that as much as 1.5 million b/d of supply could be lost to accelerated decline over the next 2 years within the US onshore, Alaska, Canada, UK, Norway, and Russia.

Finally, the analysts see that new supply projects are being postponed. Within the growth regions, the rise in costs and taxes in recent years suggests that the average oil price necessary to achieve a 15% rate of return is now $68/bbl in Angola, $62/bbl in the US Gulf of Mexico, $60/bbl in deepwater Nigeria, and around $60/bbl in Brazil, although this depends heavily on the scale of the development considered.

"Whilst this is in line with our estimate of the companies’ long-run planning price, against the current economic backdrop, it comes as little surprise that 2008 saw fewer final investment decisions taken than in any year since 1989 despite the surge in the oil price," the analysts said.

My comment: My view is that when demand for oil returns, as it will, the oil price will exceed the previous highs set last summer. That is why I have been buying quality oil names at these levels.

John Polomny
The Real Deal