Zeev's Turnips Patch-No Politics (ZEEV)

[cy esp]

Zeev, here are a couple of articles by Ray James that match my thoughts on why energy prices will continue to surprise to the high side. I think you may be underestimating how high energy prices will be going in the next few years.


The demand side:

the biggest change to the global oil
supply/demand model over the past year has been the explosion in oil demand. The 2.8 million barrels per
day of year over year oil demand growth in 2004 is the highest oil demand growth that we have seen in
decades. While a few hundred thousand barrels per day of this demand growth could be attributed to nonrepeatable
SPR (Strategic Petroleum Reserve) inventory builds, it is clear that there truly is a new oil
demand paradigm in place. Specifically, long-term oil demand implications of industrialization in highly
populated third world countries such as China and India are going to have a profound effect on global oil
consumption for the rest of the decade. Like Japan in the 1960s and Korea in the 1990s, we fully expect
China to experience a rapid increase in their per capita consumption of oil (and other energy
sources) over the next decade.

http://beacon1.rjf.com/researchpdf/iEne112904b_1227.pdf

The supply side article is not as clear, but here it is your perusal.

longer-term prices are heading upward. Geopolitics, which was largely responsible
for the prior oil shocks, has so far been a relatively small factor in the recent price surge. The major shift has
to do with far more bullish fundamental changes in oil economics: constrained supply that has had difficulty
meeting sharply growing demand. As “Hubbert’s peak” theory suggests, the point at which peak oil output is
reached is likely less than 10 years away.

http://beacon1.rjf.com/researchpdf/iEne112204b_1656.pdf

Regards - Cy