It's peak oil, stupid!
That's my reaction to this headline on CBS Marketwatch: Oil price surge defies forecasters (registration required). The article begins:
And when he says "in some areas of the world, supply growth has hit a wall," he should really say "in almost all areas of the world." (Stealing from a post I made last July:) Richard Heinberg's The Party's Over has a list of the peak oil years for various countries and groups of countries. The years listed are when that nation's oil production was or will be at its maximum. You'll notice that an awful lot of these years exist in that part of time commonly known as "the past."
So, by the end of the decade the entire world outside of Saudi Arabia is projected to have hit the wall.
Anyway, be wary of headlines, and even opening paragraphs. The author interviewed several "experts" on oil prices, and chose to lead with the ones who had no explanations, rather than with Adkins, who had several. Maybe this was bias on the part of CBS Marketwatch's Lisa Saunders towards lower oil prices, or perhaps just some sort of rough "democracy" where she figured "I've got two guys who are clueless, and one who isn't, so I'll lead with the clueless ones."
As crude-oil futures climbed above $51 a barrel this week, analysts threw up their hands and wondered why.Actually, just a few paragraphs below this an analyst explains it fairly well (emphasis added):
"None of the historical correlations analysts have used - inventories primarily for oil, storage for natural gas, natural-gas and oil prices for rig counts -- work," said Jim Wicklund, managing director of energy research at Banc of America Securities.
"No one can really explain, with anything but a very broad brush, why crude oil prices are as high as they are."
Pointing to the Energy Department and American Petroleum weekly U.S. inventory reports, James Williams, an energy economist at WTRG Economics, said nothing in the data supports prices at this level.
"But we're still too low [in our forecasts]," said Marshall Adkins, managing director of energy equity research at Raymond James. "There has been a fundamental shift in the oil markets."When Adkins talks about the absence of an oil bubble, he's talking about something very close to peak oil. It's possible that supply could continue growing for a few years, just not as fast as demand, which would mean shortages but not peak oil. But the disappearance of the bubble and peak oil are likely to happen about the same time.
One reason for the disparity between forecasts and the current price of crude is a bias on the part of analysts. Most analysts believe that oil will return to normal levels, though he said there's no longer a good way to gauge what is normal.
"This time is different than other times," Adkins said. "We've always had an oil bubble in our existence, where there was more supply capacity than demand, and that's essentially not the case anymore."
Secondly, demand from China has skyrocketed. And thirdly, in some areas of the world, supply growth has hit a wall.
Analysts are biased in another way.
"We're as guilty of this as anyone," Adkins said. "As analysts, you would rather be too conservative on your forecasts than too aggressive because you have to do more explaining on the high side than on the low side."
And when he says "in some areas of the world, supply growth has hit a wall," he should really say "in almost all areas of the world." (Stealing from a post I made last July:) Richard Heinberg's The Party's Over has a list of the peak oil years for various countries and groups of countries. The years listed are when that nation's oil production was or will be at its maximum. You'll notice that an awful lot of these years exist in that part of time commonly known as "the past."
- US 1970, Canada 2006, Mexico 2005, Total North America 1983
- Argentina 1997, Brazil 2003, Colombia 2004, Ecuador 1997, Peru 1979, Trinidad & Tobago 1977, Venezuela 1970, Total South & Central America 2006
- Denmark 2004, Italy 1997, Norway 2004, Romania 1976, UK 2000, Total Europe 2006
- Former Soviet Union 1987
- Iran 1976, Iraq 2009, Kuwait 2010, Oman 2005, Qatar 2004, Saudi Arabia 2017, Syria 1995, UA Emirates 2009, Yemen 2005, Total Middle East 2009
- Algeria 2006, Angola 2002, Cameroon 1985, Congo 2004, Egypt 1993, Equatorial Guinea 2003, Gabon 2004, Libya 1969, Nigeria 2007, Tunisia 1981, Total Africa 2006
- Australia 2005, Brunei 1979, China 2007, India 2004, Indonesia 1977, Malaysia 2003, Papua New Guinea 1993, Thailand 2004, Vietnam 2004, Total Asia-Pacific 2004
- Total World Peak 2006
So, by the end of the decade the entire world outside of Saudi Arabia is projected to have hit the wall.
Anyway, be wary of headlines, and even opening paragraphs. The author interviewed several "experts" on oil prices, and chose to lead with the ones who had no explanations, rather than with Adkins, who had several. Maybe this was bias on the part of CBS Marketwatch's Lisa Saunders towards lower oil prices, or perhaps just some sort of rough "democracy" where she figured "I've got two guys who are clueless, and one who isn't, so I'll lead with the clueless ones."
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