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The Difference Between Oil Reserves and Supply

In his recent column in the New York Times, Michael C. Lynch shows that he does not grasp the crucial difference between crude oil reserves and supply (“Drilling for an Oil Crisis”, February 24, 2011). Demand and the rising cost of getting oil out of the ground are apparently not important in his “don’t worry be happy” message that the plentiful oil of the past will continue into the indefinite future.

For him, reserves are all that matter. The fact that reserves usually take years of drilling and complex negotiations before they become supply escapes him. Of all the oil discovered in the last decade, less than 3 percent has been produced so far (M.K. Horn and Associates, Giant Fields Database, 2010). I suppose Mr. Lynch thinks that this is good news for the future, but it does nothing to address today’s soaring demand.

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Egypt, a Classic Case of Rapid Net-Export Decline and a Look at Global Net Exports

Based on the ELM, we have concluded that given a production decline in an oil-exporting country, the Net Export Decline (NED) rate will exceed the production-decline rate and the NED rate will accelerate with time – unless the exporting country cuts its oil consumption at the same rate as, or at a faster rate than, the rate of decline in production. Furthermore, the bulk of post-peak Cumulative Net Exports (CNE) tends to be shipped early in the NED period.

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World in Upheaval – Current Developments 2-21-2011

So far Libya is the only major oil exporting country in which the upheavals appear likely to threaten oil exports in the near future. Benghazi in eastern Libya has fallen into the hands of the demonstrators and a local tribal chief is threatening to cut off oil exports unless Tripoli stops using violence against demonstrators. Libya exports about 1.5 million b/d most of which goes to Europe.

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Oil and the Global Economy 2-21-2011

Given that US gasoline prices inevitably rise from February to the summer driving season as demand increases and more expensive blends are produced, observers are starting to talk about $3.50 gasoline this summer and even $4 if there is trouble in the Middle East or if the Saudis do not come through with their widely anticipated production increase this year.

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An Oil Shock in 2012?

The price of oil is once again daily in the news. The western Europe benchmark Brent crude has hovered near $100 / barrel for much of the last month, and the IEA is again warning of the burden of oil consumption. Is this a harbinger of things to come, or a mere statistical blip in a market that is ‘well supplied’? How will events play out in oil markets in the coming year or two?

Certainly, oil prices have surged on the back on strong demand, of which some is structural, and some transient. The northern hemisphere has seen a strikingly cold winter, leading to increased heating oil usage. And the global economy is recovering from a deep recession, with demand bouncing off the recessionary trough. These are, to an extent, passing events. But in many respects, increased prices fundamentally reflect an oil demand that is increasing faster than supply.

Posted On : Published By : aspo-usa