JackCB, $35-$40 oil predictions
I saw these $35-$40 predictions for last year also. Steve Forbes was saying the same thing then. I guess they figure that if they say it long enough it will come true. Apparently the futures market does not agree with them as I see oil at over $70/barrel into October '06.
At the current time we appear to have a 2 million barrel per day cushion...at least that's what I read. That's actually pretty thin. And the cushion could be heavy oil that most refineries don't want and can't process.
The problem is inter-related to many things such as supply vs demand, light sweet oil vs heavy sulfer oil, political tensions that could cause disruptions, hurricanes, depletion rates of current fields, reserve rate declines of many large oil companies (and lack of honesty of reporting of such...i.e. Shell). Almost all OPEC countries dance around the truth in reporting thier reserves and many believe that it is because they don't have near what they report to have. They are all stretched pretty thin right now in production capabilities...at least that's the case if you listen to experts such as Matt Simmons...and maybe Boone Pickens also.
And then there is another real problem &/or bottleneck called refineries. There are not enough of them to provide enough usable product, even if there was plenty of oil supply...and they can't build enough, fast enough, to meet the rising demand from places like China, India, So. Korea, etc. Bush has been harping on the need for more refineries in the US, even to the point of offering abandoned military base property for free, and as far as I know he has not gotten any takers. So the US govt. understands the problem also. But if I were the CEO of a large oil company I wouldn't spend billions of dollars on several more refineries when I know that it result in more competition which could lower the prices of refined goods...and lower the profits in the refining business. China, on the other hand, is trying to build more but it takes years to build them. And by the time they have new ones built the oil supply situation may deteriorate. There are just not enough new elephant fields being discovered to replace the depleting fields...while the demand keeps rising. I think I read somewhere that the world would need another 7-10 Gawhar's to meet the rising demand by 2020 or so. So what if they build 50 new refineries and in a few years there is not enough oil to keep them supplied. That's a huge investment to have sitting idle.
So I don't know of any master plan to overcome all of these problems...at least not in the forseeable future. About the only thing these $35 oil forcasters must think is that the world economy is going in the toilet. That would cause a oversupply of oil. But normally if you were to ask them they won't venture out on that limb. That would be like telling all thier clients that they have them at overall risk in all of thier non-oil portfolio's.
When I hear people like Steve Forbes and the likes predicting plenty of oil and lower oil prices I have to wonder if they have noticed the struggle going on around the world between the US and China over new potential supplies. Does that not register that there could be a problem from here forward? How can the rest of the world see the problem...but not these so-called finacial wizards?...these ones handling other peoples financial futures?
I have studied this topic fairly well and IMHO I just don't see $35-$45 oil any time in the near future. I don't know what the world economy will do but if it stays as it is, oil should continue to maintain the same patterns as we have seen in the last year...may even go higher. Remember that even when demand drops a little and oil prices go down a little, the lower prices cause people and businesses to go back to using more oil causing the prices to go up again. Appears that is the cycle we are in. This is all just my opinion and it may only be as good as the price you are paying for it.
Badog
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